Dividend Discount Model

> 1/1.103^5 + 1.25/1.103^6 + (1.5625+36.85)/1.103^7 = 20.65
Unless my math is really bad, the sum above is $20.90.
If you do it this way, you will have to pick the wrong answer (B).
 
Its bad :)
I probably didn’t write the order of operations 100% correct so maybe that’s what tripped you up.
1/(1.103^5) + 1.25/(1.103^6) + (1.5625+36.85)/(1.103^7) = 20.65
 
You’re right…. I think I entered $38.65 in your formula. All well, as long as it works.
 
OK im NOT getting this correct here
CF0 - 0
CF1 - 0
CF2 - 0
CF3 - 0
CF4 - 0
CF5 - 1
CF6 - 1.25
CF7 - 1.562
CF8 - 1.93
CF9 - 2.05 + 38.68
NPV = 20.50
Where am I going wrong here?
 
CF9 occurs at CF8, not at 9th period, with stock price added to the 1.25^3 dividend
 
CF8 = 1.953125 + 1.953125 * 1.05 / (.103 - 0.05).
CF9 –> is 2.0507
Discount it back at (r -g) = (.103 - .05) to get the add on to CF8
then do not consider the CF9 in your cash flow calculation.
Another short cut to remember on the TI BA II Plus Calc.
CF0 = 0
CF1 = 0, F1 = 4 (Frequency=4 “Zero” cash flows)
CF2 = 1 F2 = 1
CF3 = 1.25 F3=1
and so on
CP
 
38.68 is the number to be used.
Period 9: CF = 1.951325 * 1.05 (Growth factor of 5%)
This discounted back by the uniform growth rate becomes
1.951325 * 1.05 / (.103 - .05) = 38.68
at Period 8.
CP
 
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