Answer:
Share price =$146.168
Explanation:
According to the dividend valuation model, the value of a stock is the present value of the expected future dividends from the stock discounted at the the required rate of return.
The required rate of return here is 12%
The dividend growth model a be applied to each of the years as appropriate.
The share price of Jean Fashion can be computed as follows:
Year working Present value of Dividend
1 3.80 × (1.22) ×(1.12)^(-1) = 4.139
2 3.80× ((1.22)^2 × (1.12)^(-2) = 4.50
3 3.80× (1.22)^3 × (1.12^(-3) = 4.91
4 to infinity See workings 132.60
Price of share(total PV) $146.168
Share price =$146.168
Workings
PV in year 3 =3.80× (1.22)^3 × (1.08)/(0.12-0.08)= 186.30
PV in year 0 = 186.30 × 1.12^(-3) = 132.608
