In: Finance
Buckstars Inc. is a rapidly growing exotic herb company. The firm expects to pay its first dividend of $3.60 per share 4 years from today and management then expects to grow the dividend at 29% for 3 years. As competition enters the market, dividend growth after that will drop to 5% forever. If the appropriate discount rate is 10%, what is the share price today? Solve in excel and round your final answer to 2 decimal places.
Price of the Stock is the Value Dividents from it. Share price today is 54.31
Year | Item | Dividents | PVF @ 10% | PV of Dividents |
4 | D4 | 3.60 | 0.6830 | 2.46 |
5 | D5 | 4.64 | 0.6209 | 2.88 |
6 | D6 | 5.99 | 0.5645 | 3.38 |
7 | D7 | 7.73 | 0.5132 | 3.97 |
7 | P7 | 81.10 | 0.5132 | 41.62 |
54.31 |
P7 = D8/Required rate of Return
= 7.73*105%/0.10
= 81.10
D5 = 3.6 * 129% = 4.64
D6 = 4.64 * 129% = 5.99
D7 = 5.99 *129% = 7.73
D8 = 7.73 * 105% = 8.11