Answer:
$29.83
Explanation:
This question requires application of dividend discount model, according to which current value of share is present value of dividends expected in future.
[tex]P0=\frac{Div1}{(1+r)^{1} }+\frac{Div2}{(1+r)^{2} }+\frac{V2}{(1+r)^{2} }[/tex]
where V2 is the terminal value, present value of dividends growing at constant growth rate,
V2 = Div3 ÷ (r - g)
Div3 = $2.24 × (1 + 2.8%)
= $2.30272
V2 = $2.30272 ÷ (0.102 - 0.028)
= $2.30272 ÷ 0.074
= $31.12
[tex]P0=\frac{2.60}{(1+0.102)^{1} }+\frac{2.24}{(1+0.102)^{2} }+\frac{31.12}{(1+0.102)^{2} }[/tex]
[tex]P0=\frac{2.60}{1.102}+\frac{2.24}{1.214404}+\frac{31.12}{1.214404}[/tex]
= 2.36 + 1.84 + 25.63
= $29.83
