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(Solved): Orange Inc's next two annual dividends be $5.29 and $5.87, with the first occurring exactly one year ...
Orange Inc's next two annual dividends be $5.29 and $5.87, with the first occurring exactly one year from today. After the second dividend, future dividends will grow at a constant rate of 4% per year indefinitely. What is a fair price for Orange stock if investors require a return of 14.0% ? Round your answer to the nearest penny.
Fair Value Computation for Orange Inc Stock: Compute the current worth of the initial two profits.Profit 1: $5.29Profit 2: $5.87Required to bring the rate back: 14%To find the current worth of every profit, we want to limit them back to the current utilizing the necessarily bring rate back. The recipe to work out the current worth is:Present Worth = Profit/(1 + Required return rate)^(Number of years)For-profit 1:Present Worth of Profit 1 = $5.29/(1 + 0.14)^1 = $5.29/1.14 = $4.63For-profit 2:Present Worth of Profit 2 = $5.87/(1 + 0.14)^2 = $5.87/1.2996 = $4.52