Marcel Co. is growing quickly. Dividends are expected to grow at a 24 percent ra
ID: 2775184 • Letter: M
Question
Marcel Co. is growing quickly. Dividends are expected to grow at a 24 percent rate for the next 3 years, with the growth rate falling off to a constant 6 percent thereafter.
If the required return is 11 percent and the company just paid a $3.60 dividend. what is the current share price?(Do not round your intermediate calculations.)
Marcel Co. is growing quickly. Dividends are expected to grow at a 24 percent rate for the next 3 years, with the growth rate falling off to a constant 6 percent thereafter.
Explanation / Answer
Price of the stock = D1/( 1+Ke)^1+D2/(1+Ke)^2+D3/(1+Ke)^3+D4/Ke-G*1/(1+Ke)^3
Price of the stock =4.46/(1+0.11)^1+5.54/(1+0.11)^2+6.86/(1+0.11)^3+7.28/(0.11-0.06)*1/(1+0.11)^3
=4.02+4.49+5.02+106.40 i.e 119.93
D1 4.46 D2 5.54 D3 6.86 D4 7.28