Question

Synovec Corp. is experiencing rapid growth. Dividends are expected to grow at 24 percent per year during the next three years, 14 percent over the following year, and then 8 percent per year, indefinitely. The required return on this stock is 10 percent and the stock currently sells for $86 per share. What is the projected dividend for the coming year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Ans : According to gordon growth model, Price of the stock, if the growth rate is perpetual =

P =Dividend for next year/(Return on equity - growth rate)

86 = Dividend/(0.10-0.08)

86 = dividend /(0.02)

86*0.02 = dividend

dividend for next year = $1.72