Hot Wings, Inc., has an odd dividend policy. The company has just paid a dividend of $8.50 per share and has announced that it will increase the dividend by $6.50 per share for each of the next four years, and then never pay another dividend. Required: If you require a return of 16 percent on the company’s stock, how much will you pay for a share today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Current share price $ Explanation: The price of a stock is the PV of the future dividends. This stock is paying four dividends, so the price of the stock is the PV of these dividends discounted at the required return. So, the price of the stock is: P0 = $15.00 / 1.16 + $21.50 / 1.162 + $28.00 / 1.163 + $34.50 / 1.164 P0 = $65.90

Hot Wings, Inc., has an odd dividend policy. The company has just paid a dividend of $8.50 per share and has announced that it will increase the dividend by $6.50 per share for each of the next four years, and then never pay another dividend.

Required:

If you require a return of 16 percent on the company’s stock, how much will you pay for a share today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Current share price	$

 
Explanation:

The price of a stock is the PV of the future dividends. This stock is paying four dividends, so the price of the stock is the PV of these dividends discounted at the required return. So, the price of the stock is:

P0 = $15.00 / 1.16 + $21.50 / 1.162 + $28.00 / 1.163 + $34.50 / 1.164

P0 = $65.90