Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 3.64 percent for the next three years, with the growth rate falling off to a constant 5.28 percent thereafter. If the required return is 11.44 percent and the company just paid a dividend of $2.62, what is the current share price?
D1=(2.62*1.0364)=2.715368
D2=(2.715368*1.0364)=2.8142074
D3=(2.8142074*1.0364)=2.91664455
Value after year 3=(D3*Growth rate)/(Required rate-Growth rate)
=(2.91664455*1.0528)/(0.1144-0.0528)
=49.8481069
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=2.715368/1.1144+2.8142074/1.1144^2+2.91664455/1.1144^3+49.8481069/1.1144^3
=$42.83(Approx).
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 3.64 percent...
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