Marcel Co. is growing quickly. Dividends are expected to grow at a 19 percent rate for the next 3 years, with the growth rate falling off to a constant 5 percent thereafter.
Required: If the required return is 9 percent and the company just paid a $2.40 dividend. what is the current share price?
D1=(2.4*1.19)=2.856
D2=(2.856*1.19)=3.39864
D3=(3.39864*1.19)=4.0443816
Value after year 3=(D3*Growth rate)/(Required rate-Growth rate)
=(4.0443816*1.05)/(0.09-0.05)
=$106.165017
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=2.856/1.09+3.39864/1.09^2+4.0443816/1.09^3+106.165017/1.09^3
=$90.58(Approx).
Marcel Co. is growing quickly. Dividends are expected to grow at a 19 percent rate for...
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