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Suppose the Bastille Corp. has just paid a dividend of $3.00 per share. Dividends for Bastille...

Suppose the Bastille Corp. has just paid a dividend of $3.00 per share. Dividends for Bastille are expected to grow at a rate of 10% for 2 years and then 2% per year indefinitely. If the required return is 15%, what is the value of a share of Bastille stock today?

a. $24.40
b. $27.15
c. $36.78
d. $53.44
e. $70.87

Solutions

Expert Solution

P0 = [D0(1 + g1) / (R − g1)]{1 − [(1 + g1) / (1 + R)]^t} + [(1 + g1) / (1 + R)]^t[D0(1 + g2) / (R − g2)]

P0 = [$3.00(1.10) / (0.15 − 0.10)][1 − (1.10 / 1.15)^2] + [(1.10) / (1.15)]^2[$3.00(1.02) / (0.15 − 0.02)]

P0 = $27.15

jeff jeffy answered 2 years ago
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