Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 1.35 percent for the next three years, with the growth rate falling off to a constant 6.63 percent thereafter. If the required return is 10.96 percent and the company just paid a dividend of $7.22, what is the current share price
D1=(7.22*1.0135)=7.31747
D2=(7.31747*1.0135)=7.41625585
D3=(7.41625585*1.0135)=7.5163753
Value after year 3=(D3*Growth rate)/(Required return-Growth rate)
=(7.5163753*1.0663)/(0.1096-0.0663)
=185.097251
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=7.31747/1.1096+7.41625585/1.1096^2+7.5163753/1.1096^3+185.097251/1.1096^3
=$153.61(Approx)
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 1.35 percent...
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