 # Schweser Volume 1 Exam 2AM QUestion 14

can someone tell me where the 0.08 came from? Your answer: B was correct! The value of the stock in early 2008 is the present value of the future dividends. After 2010, dividends are expected to grow at the rate of 4%. The dividend that begins the constantly growing perpetuity is \$2.63 × 1.04 = \$2.74. The appropriate discount rate is the cost of equity of 7.2% from Question 13. Note that for the third cash flow, we add the third dividend (\$2.63) to the present value of the constantly growing perpetuity that begins in the fourth year = \$2.74 / (0.08 – 0.04) = \$68.50. This is valid since they both occur at the same point in time (i.e., at the end of the third year). Using a financial calculator we can estimate the value of one share of O’Connor stock as follows: CFO = 0; C01 = \$2.13; C02 = \$2.36; C03 = \$2.63 + \$68.50 = \$71.13; I = 7.2; CPT → NPV = \$61.78 (Study Session 12, LOS 46.h)

schweser Errata. read 3 other posts on the same topic this morning

by errata do u mean error?

i mean read schweser errata. they missed out the 8% in the vignette