Bretton, inc., just paid a dividend of $3.05 on its stock. the growth rate in dividends is expected to be a constant 5 percent per year, indefinitely. investors require a return of 12 percent on the stock for the first three years, a rate of return of 10 percent for the next three years, and then a return of 8 percent thereafter. what is the current share price for the stock? (do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

The current share price of the stock: $91.12.

Explanation:

Current share price is equal to the total net present value of the following dividend streams:

The first dividend stream from Y1 to Y3 as followed: Y1: 3.05 x 1.05 = 3.2025; Y2 = $3.3626; Y3 = 3.5308 => Present value of the first dividend stream = 3.2025/1.12 + 3.3626/1.12^2 + 3.5308/1.12^3 = $8.0532.

The second dividend stream fro Y4 to Y6 is : Y4 = 3.3326 x 1.05 = 3.4992; Y5 3.4992 x 1.05 = 3.6742; Y6 = 3.6742 x 1.05 = 3.8579 => Present value of the second dividend stream = 3.4992/1.1^4 + 3.6742/1.1^5 + 3.8579/1.1^6 = $6.8491.

The last dividend stream Y7: 4.0508 and grow 5% each year to the indefinite => Present value is [4.0508/(8% - 5%)]/1.1^6 = $76.219.

=> Current share price = 76.219 + 6.8491 + 8.0532 = $91.12 ( round to two decimal places).

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"we first find value of tax in dollars.

the difference between the two prices   is: 23. 54 - 22 = 1.54

therefore the sales tax in dollars is 1.54

the tax % will be   (amount of tax / original cost price ) × 100

(1.54 / 22) × 100  → (0.07) × 100 =   7

so the tax rate is 7%

we can double check the answer.

7 % of 22   → (7/100) × 22 → 0.07 × 22 = 1.54

22 + 1.54 = 23.54"

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