Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 17 percent for the next 3 years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 10 percent and the company just paid a $3.70 dividend. what is the current share price?
Multiple Choice $103.95 $101.62 $108.19 $97.57 $106.07
D1=(3.7*1.17)=4.329
D2=(4.329*1.17)=5.06493
D3=(5.06493*1.17)=5.9259681
Value after year 3=(D3*Growth rate)/(Required rate-Growth rate)
=(5.9259681*1.05)/(0.1-0.05)
=124.44533(Approx).
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=4.329/1.1+5.06493/1.1^2+5.9259681/1.1^3+124.44533/1.1^3
=$106.07(Approx).
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 17 percent...
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