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The last dividend paid by Coppard Inc. was $1.25. The dividend growth rate is expected to...

The last dividend paid by Coppard Inc. was $1.25. The dividend growth rate is expected to be constant at 22.5% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price?

Select the correct answer.

a. $48.24
b. $49.26
c. $48.75
d. $47.73
e. $47.22

Solutions

Expert Solution

Year Dividen Dividend PVF@ 11% PV P1 (2*3)
1 1.25*1.225^1                     1.53 0.9009 1.3795045
2 1.25*1.225^2                     1.88 0.8116 1.52242614
3 1.25*1.225^3                     2.30 0.7312 1.68015498
3 price at 3                48.760 0.7312 35.653312
Total 40.2353976
price at year 3   = Dividend 3 * (1+G)/ (Ke-G)
2.30*1.06/ ( 0.11-0.06)
48.76

NOTE:

PV @ 11 = 1/1.11^n where n = years

jeff jeffy answered 1 year ago
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