Question

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 4.31 percent for the next three years, with the growth rate falling off to a constant 6.96 percent thereafter. If the required return is 9.95 percent and the company just paid a dividend of $7.19, what is the current share price?

Answer 1

	Required rate=	9.95%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	7.19	4.31%	7.499889		7.499889	1.0995	6.821181446
2	7.499889	4.31%	7.823134216		7.823134216	1.20890025	6.471281825
3	7.823134216	4.31%	8.160311301	291.915	300.0753113	1.329185825	225.7587357
	Long term growth rate (given)=	6.96%			Value of Stock =	Sum of discounted value =	239.05

Where
Current dividend =	Previous year dividend*(1+growth rate)^corresponding year
Unless dividend for the year provided
Total value = Dividend	+ horizon value (only for last year)
Horizon value =	Dividend Current year 3 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=	(1+ Required rate)^corresponding period
Discounted value=	total value/discount factor