You are analyzing Jillian's Jewellery (JJ) stock for a possible purchase. JJ just paid a...
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You are analyzing Jillian's Jewellery (JJ) stock for a possible purchase. JJ just paid a dividend of $1.50 yesterday. You expect the dividend to grow at the rate of 6% per year for the next 3 years; if you buy the stock, you plan to hold it for 3 years and then sell it.
1. JJ stock should trade for $27.05 3 years from now (i.e., you expect P3 = 27.05). Discounted at a 13% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $27.05.
2. Use the constant growth model to calculate the present value of this stock. Assume that G=6% and is constant.
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