A stock is expected to grow at a rate of 22% for the next three years....

A stock is expected to grow at a rate of 22% for the next three years. A recent dividend paid was $1.35 per share. After three years, the stock is expected to grow at a constant rate of 12% per year. If the minimum acceptable rate of return is 14%, what is the current expected price? Show all work.

Solutions

Expert Solution

D1=(1.35*1.22)=1.647

D2=(1.647*1.22)=2.00934

D3=(2.00934*1.22)=2.4513948

Value after year 3=(D3*Growth rate)/(Required return-Growth rate)

=(2.4513948*1.12)/(0.14-0.12)

=137.278109

Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)

=1.647/1.14+2.00934/1.14^2+2.4513948/1.14^3+137.278109/1.14^3

=$97.30(Approx)

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

an annual rate of 13％for the next three years。The growth rate is A firm is expected...

an annual rate of 13％for the next three years。The growth rate is A firm is expected to grow expected to decrease to 10％for the following two years and to be 4％thereafter forever。The last dividend paid（Do）is 243.00。Dividends are paid at the end of each year。The required rate of return is 14％，Find the intrinsic value of the common share。Drawing a diagram will help you to organize the information。

Ceebros Builders is expanding very fast and is expected to grow at a rate of 25 percent for the next four years.

Ceebros Builders is expanding very fast and is expected to grow at a rate of 25 percent for the next four years. The company recently paid a dividend of $3.60 but is not expected to pay any dividends for the next three years. In year 4, management expects to pay a $5 dividend and thereafter to increase the dividend at a constant rate of 6 percent. The required rate of return of such stocks is 20 percent. (9 points)a. Calculate...

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 22 percent...

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 22 percent for the next 3 years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 9 percent and the company just paid a $2.80 dividend. what is the current share price? Multiple Choice $146.30 $152.27 $149.29 $145.36 $137.83

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter

S08-18 Supernormal Growth [LO1]Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $2.45, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)Current share price=

Trentham Estate Ltd expects to grow at a rate of 22 per cent for the next 5 years and then settle to a constant-growth rate of 6 per cent.

Trentham Estate Ltd expects to grow at a rate of 22 per cent for the next 5 years and then settle to a constant-growth rate of 6 per cent.The company’s most recent dividend was $2.35.The required rate of return is 15 per cent.a Find the present value of the dividends during the rapid growth period.b What is the price of the share at the end of year 5?c What is the price of the share today?

Beachmaster Suntan Oil’s dividend is expected to grow at a 20% rate each of the next...

Beachmaster Suntan Oil’s dividend is expected to grow at a 20% rate each of the next 2 years. After that, dividend growth is expected to normalize at about 6.5% annually. Beachmaster just paid a $1.25 annual dividend per share. The require rate of the return of the stock is 12%. What is your estimated stock price today?

A firm is not expected to pay a dividend for the next three years. If the...

A firm is not expected to pay a dividend for the next three years. If the expected share price of the firm in three years in $29 and investors require a 11% rate of return, what is the expected share price today?

A firm is not expected to pay a dividend for the next three years. If the...

A firm is not expected to pay a dividend for the next three years. If the expected share price of the firm in three years is $48 and investors require a 14% rate of return, what is the expected share price today?

•Suppose FCFE = $900,000 for years 1-4 and then is expected to grow at a rate...

•Suppose FCFE = $900,000 for years 1-4 and then is expected to grow at a rate of 3%. Assume ke = 18%. What is the market value of equity?

Magnetic Corporation expects dividends to grow at a rate of 17% for the next two years....

Magnetic Corporation expects dividends to grow at a rate of 17% for the next two years. After two years dividends are expected to grow at a constant rate of 6.1%, indefinitely. Magnetic’s required rate of return is 11.2% and they paid a $1.65 dividend today. What is the value of Magnetic Corporation’s common stock per share? (Show your answers to the nearest cent) What is Dividend at end of year 1: What is Dividend at end of year 2: What...

Subjects