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2. Wildhorse, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for...

2. Wildhorse, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.35 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 22 percent, what is the current value of the stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

Current value​​​​​​​ $

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Expert Solution

Current value $25.79
Statemnet showing Current Price
Particulars Time PVf 22% Amount PV
Cash inflows (Dividend)                            1.00            0.8197                   2.3500                        1.93
Cash inflows (Dividend)                            2.00            0.6719                   3.0550                        2.05
Cash inflows (Dividend)                            3.00            0.5507                   3.9715                        2.19
Cash inflows (Dividend)                            4.00            0.4514                   4.6467                        2.10
Cash inflows (Dividend)                            5.00            0.3700                   5.4366                        2.01
Cash inflows (Price)                          5.00            0.3700                 41.9394                     15.52
Current Price of Stock                     25.79
P5= D6/ke-g
P5 = 5.4366*1.08/(22%-8%)
P5 = 5.8715/(14%)
P5 = 41.9394

jeff jeffy answered 1 year ago
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