Upper Gullies Corp. just paid a dividend of $1.90 per share. The dividends are expected to...
Upper Gullies Corp. just paid a dividend of $1.90 per share. The dividends are expected to grow at 22% for the next eight years and then level off to a 6% growth rate indefinitely. If the required return is 13%, what is the price of the stock today? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Stock price $
Homework Answers
Price of stock = PV of dividends for 8 years + PV of horizon value
Horizon value= P8=D9/(k-g)
= 9.324644*106%/(13%-6%)
= 141.2018
Price of stock= 21.79+ 141.2018/1.13^8
= $74.90
Workings
| Year | Dividend |
| 1 | 2.318 |
| 2 | 2.82796 |
| 3 | 3.450111 |
| 4 | 4.209136 |
| 5 | 5.135146 |
| 6 | 6.264878 |
| 7 | 7.643151 |
| 8 | 9.324644 |
| Present value | $21.79 |
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