
Answer:
Pā = $106.96
Explanation:
the current dividend paid by IBM was $6.30 per stock
Divā = $6.30
Divā = $6.615
Divā = $6.94575
Divā = $7.2930375
Divā = $7.657689375
Divā = $8.040573844
Divā = $8.321993928
we must first determine the terminal value at year 5 = Divā / (rrr - g) = $8.321993928 / (10% - 3.5%) = $128.0306758
now we must discount the future values using the 10% discount rate:
Pā = $6.615/1.1 + $6.94575/1.1² + $7.2930375/1.1³ + $7.657689375/1.1ā“ + $8.040573844/1.1āµ + $128.0306758/1.1āµ = $6.013 + $5.740 + $5.479 + $5.230 + $4.993 + $79.50 = $106.96