Terminal Price(P12) = [D0 * (1 + g1)12 * (1 + gC)] / [r - gC]
= [$1.64 * (1 + 0.18)12 * (1 + 0.04)] / [0.11 - 0.04]
= $12.43 / 0.07 = $177.57
PV of Terminal Value = P12 / (1 + r)12 = $177.57 / (1 + 0.11)12 = $177.57 / 3.4985 = $50.76
PV of Growing Dividends = [D1 / (r - gC)] * [1 - {(1 + gC) / (1 + r)}n]
= [{$1.64 * (1 + 0.18)} / (0.11 - 0.04)] * [1 - {(1 + 0.04) / (1 + 0.11)}12]
= [$1.9352 / 0.07] * [1 - 0.4576]
= $27.65 * 0.5424
= $14.99
Stock Price = PV of Growing Dividends + PV of Terminal Value
= $14.99 + $50.76 = $65.75
Navel County Choppers, Inc., is experiencing rapid growth. The company expects dividends to grow at 18...
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