1. Non-constant dividends: The Lohn Corporation is going through a period of restructuring, during which dividends are expected to vary. However, following an expected dividend of $3 in year 4, the company plans to maintain a constant 5 percent dividend growth rate. If the required return to investors holding the stock is 13 percent, what should be the ex dividend share price in year 4?
$37.50
$24.23
None of these values are correct.
$39.38
2. Non-constant dividends: The Lohn Corporation is going through a period of restructuring, during which dividends are expected to vary. Specifically, dividends over the next four years are expected to be as follows $10, $7, $6, and $2.75. Thereafter, the company plans to maintain a constant 5 percent dividend growth rate. Since the required return to investors holding the stock is 13 percent, you've calculated that the ex dividend share price in year 4 will be $36.09.
What should be the current share price?
$48.57
$42.31
None of these values are correct.
$53.01