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Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 22 percent...

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 22 percent for the next 3 years, with the growth rate falling off to a constant 6 percent thereafter.

  

If the required return is 9 percent and the company just paid a $2.80 dividend. what is the current share price?

Multiple Choice

  • $146.30

  • $152.27

  • $149.29

  • $145.36

  • $137.83

Solutions

Expert Solution

current share price is $149.29
Statemnet showing Current Price
Particulars Time PVf 9% Amount PV
Cash inflows (Dividend)                               1.00                  0.9174                  3.4160                      3.13
Cash inflows (Dividend)                               2.00                  0.8417                  4.1675                      3.51
Cash inflows (Dividend)                               3.00                  0.7722                  5.0844                      3.93
Cash inflows (Price)                             3.00                  0.7722             179.6479                  138.72
Current Price of Stock                  149.29
P3 = D4/(ke-g)
P3 = 5.0844*1.06/(9%-6%)
P3 = 5.3894/(3%)
P3 = $179.6479

jeff jeffy answered 2 years ago
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