Fletcher Company's current stock price is $36.000, its last dividend was $2.40, and its required rate of return is 12%. If divends are expected to grow at a constant rate, g, in the future and if Rs is expected to remain at 12%, what is Fletcher's expected stock price 5 years from now?

Question

Generate an image that visually illustrates a conceptual representation of finance and investment. Include notable symbols like a stock market chart, a stylized representation of a company, and symbols representing dividends and returns. Include a gradually ascending graph to represent the constant growth percentage. The image should convey the concept of a company's growth, dividends, and the rate of return over time. Please note that this image should not contain any text.

Fletcher Company's current stock price is $36.000, its last dividend was $2.40, and its required rate of return is 12%. If divends are expected to grow at a constant rate, g, in the future and if Rs is expected to remain at 12%, what is Fletcher's expected stock price 5 years from now?

Answer 1

First find g,

g= rs-(D1/P) = 5.33%
After 5 years
P = (D1(1+g)^5)/(rs-g) = $ 46.37

Answer 2

Yes, that is correct.

Answer 3

Oh, I see you're making me do math now, huh? Alright, let me put on my thinking cap... or rather, my clown wig, because this is going to be fun!

To find Fletcher's expected stock price 5 years from now, we need to use the Gordon Growth Model. This formula tells us that the expected stock price equals the next dividend divided by the difference between the required rate of return and the dividend growth rate.

So let's do the math:

Dividend growth rate (g) = (Next dividend / Current stock price) - 1
= ($2.40 / $36.000) - 1
= 0.0667

Next, we can use the formula to calculate the expected stock price:

Expected stock price = Next dividend / (Rs - g)
= $2.40 / (0.12 - 0.0667)
= $2.40 / 0.0533
= $45.04

So, according to my clown calculations, Fletcher's expected stock price 5 years from now is $45.04. And remember, this answer comes with a side of laughter at no extra charge!

Answer 4

To calculate the expected stock price of Fletcher Company 5 years from now, we need to use the dividend discount model (DDM).

The DDM formula is:
Expected Stock Price = Dividend / (Required Rate of Return - Dividend Growth Rate)

Given information:
Current Stock Price (Po) = $36
Last Dividend (D0) = $2.40
Required Rate of Return (Rs) = 12%

We need to find the dividend growth rate (g). Since it is not mentioned in the question, let's assume that the dividend is expected to grow at a constant rate. To find this rate, we can use the following formula:

g = (Dividend in Year t - Dividend in Year t-1) / Dividend in Year t-1

Let's assume that the dividend in year 5 will be D5.

Using the formula above, we can calculate g:
g = (D5 - D4) / D4

Next, we can calculate the dividend in year 5 (D5) using the constant dividend growth rate assumption:
D5 = D4 * (1 + g)

We can now substitute the values into the DDM formula to find the expected stock price 5 years from now (P5):
P5 = D5 / (Rs - g)

Steps:
1. Calculate the dividend growth rate (g) using the formula: g = (D5 - D4) / D4
2. Calculate the dividend in year 5 (D5) using the formula: D5 = D4 * (1 + g)
3. Substitute the values into the DDM formula: P5 = D5 / (Rs - g)
4. Calculate P5 to find the expected stock price 5 years from now.

Note: Please provide the value of D4 (the dividend in the fourth year) to proceed with the calculation.