A company is growing at a constant rate of 8 percent. Last week it paid a...

A company is growing at a constant rate of 8 percent. Last week it paid a dividend of $3.00. If the required rate of return is 15 percent, what is the price of the share three years from now?

	a.	$42.83.
	b.	$46.29.
	c.	$58.31.
	d.	$51.02.
	e.	$48.30.

Solutions

Expert Solution

D₀ = $3.00

D₄ = 3.00(1.08)⁴ = $4.08

Stock Price in Year 3 = D₄/(r - g)

Stock Price in year 3 = 4.08/(0.15 - 0.08)

Stock Price in Year 3 = $58.31

jeff jeffy answered 2 years ago

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