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Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 29 percent...

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 29 percent for the next 3 years, with the growth rate falling off to a constant 8 percent thereafter.

  

If the required return is 15 percent and the company just paid a $3.60 dividend. what is the current share price?

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Expert Solution

Answer - Share price Today = $92.04726546 or $92.05

Explaination -

Here we have applied dividend discounting model to find out the share price Today. Here we discount the value of all the cash inflow we are expected to receive in future and bring them at present value to find the share price Today

4th year onwards means at the beginning of 4th year or at the end of their year. As it's the value of share at the end of third year the Discounting Factor used for it is 3rd year factor, which is added up with the present value of initial 3 years present value of dividend to find share price Today.

4th year onwards we have used Gordon's Growth model formula which is -

Divided expected at the end of 4th year ÷ ( required return - growth rate )

jeff jeffy answered 1 year ago
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