Buckstars Inc. is a rapidly growing exotic herb company. The firm expects to pay its first...

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.

Solutions

Expert Solution

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

jeff jeffy answered 1 year ago

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