Case Problem
Wall Street is forecasting yearly dividends for FNC as follows: $1.00 (Year 1); $1.50 (year 2); $2.00 (Year 3); $3.00 (Year 4). The consensus estimate is that FNC shares will trade at $80 in four years. If the required return on the stock is 9%, calculate the value of FNC stock today. Show and submit all your work, then answer the following questions.
1. What is the discount rate you used in your work?
2. Could the yearly FNC dividends be computed as an annuity ? Why, or why not?
3. What is the total pv of the four yearly dividends?
4. What is the pv of the forecasted share price?
5. What is the total value of FNC today (pv of four dividends plus pv of forecasted share price)?