Too Green, Inc., is a young start-up company and it expects no dividends on the stock...
Too Green, Inc., is a young start-up company and it expects no dividends on the stock over the next 4 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $4.5 per share dividend in 5 years and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 14 percent, the current share price is $_______. (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16)
Homework Answers
Value after year 5=(D5*Growth rate)/(Required rate-Growth rate)
=(4.5*1.05)/(0.14-0.05)
=52.5
Hence current share price=Future dividend and value*Present value of discounting factor(rate%,time period)
=4.5/1.14^5+52.5/1.14^5
=29.60(Approx).
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