CX Enterprises: Calculating the Current Stock Price

What is the current price of CX Enterprises' stock?

Based on the expected dividends and equity cost of capital, how can we determine the current price of CX Enterprises' stock?

Answer:

The current price of CX Enterprises' stock is $69.44 (rounded to the nearest cent).

To calculate the current price of CX Enterprises' stock, we will use the dividend discount model (DDM). The DDM values a stock based on the present value of its expected future dividends.

The DDM formula is:

P = D1 / (r - g)

Where:

In this case, we have the following expected dividends: $1.07 in one year, $1.23 in two years, and $1.32 in three years. After that, the dividends are expected to grow at a constant rate of 4.4% per year.

Given that the equity cost of capital (r) is 11.6%, we can now calculate the current price of the stock:

P = $1.07 / (0.116 - 0.044) + $1.23 / (0.116 - 0.044) + $1.32 / (0.116 - 0.044) + ($1.32 * 1.044) / (0.116 - 0.044)

Simplifying the equation, we get:

P = $1.07 / 0.072 + $1.23 / 0.072 + $1.32 / 0.072 + $1.38 / 0.072

Calculating the values, we find:

P = $14.86 + $17.08 + $18.33 + $19.17

Therefore, the current price of CX Enterprises' stock is $69.44 (rounded to the nearest cent).