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