Question

Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the next four years (affecting D1, D2, D3, and D4). Beginning in year five, the growth rate is expected to drop to 3.3 percent per year and last indefinitely. If GRF just paid a $5.00 dividend and the appropriate discount rate is 19.5 percent, then what is the value of a share of GRF? Enter your answer to two decimal places.

Answer 1

Year	Dividend	Dividend	PV factor	Present Values
1	5*1.25	6.2500	0.83682	5.23
2	6.25*1.25	7.8125	0.700268	5.47
3	7.812*1.25	9.7656	0.585998	5.72
4	9.765*1.25	12.2070	0.490375	5.99
4		77.838	0.490375	38.17
			Total PV	60.58
Current Dividend	12.2070
Rate of return	19.50%
Growth Rate	3.30%
Horizon value	=Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
	'12.207*(1+0.033)/(0.195-0.033)
	77.838
Total PV of 60.57 is the solution.