Homework Answers
Last Dividend, D0 = $3.48
Growth rate for next 2 years is 14% and constant growth rate (g) of 3% thereafter
D1 = $3.4800 * 1.14 = $3.9672
D2 = $3.9672 * 1.14 = $4.5226
D3 = $4.5226 * 1.03 = $4.6583
Required Return, rs = 5%
P2 = D3 / (rs - g)
P2 = $4.6583 / (0.05 - 0.03)
P2 = $4.6583 / 0.02
P2 = $232.9150
P0 = $3.9672/1.05 + $4.5226/1.05^2 + $232.9150/1.05^2
P0 = $219.14
The current stock price should be $219.14
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