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Assume today is December 31, 2017. Imagine Works Inc. just paida dividend of $1.15 per...

Assume today is December 31, 2017. Imagine Works Inc. just paid a dividend of $1.15 per share at the end of 2017. The dividend is expected to grow at 18% per year for 3 years, after which time it is expected to grow at a constant rate of 6% annually. The company's cost of equity (rs) is 9.5%. Using the dividend growth model (allowing for nonconstant growth), what should be the price of the company's stock today (December 31, 2017)? Round your answer to the nearest cent. Do not round intermediate calculations.

$___________ per share

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I have solved this question in Excel. The formula used are written along with the values. If you still have any doubt, kindly ask in the comment section.

Here we will use the Multi-Stage Gordon Discount Model to calculate the price of the company stock.

Firstly we will write the cash flows given in the table. We have to then find the terminal value of year 4 and above and add it back to the cash flow of year 3. Then we have to calculate the present values of each by discounting it by 9.5%. Then adding it all will give us the price of the company stock.

The current price of the company stock = $47.60

jeff jeffy answered 2 years ago
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