Homework Answers
Last Dividend, D0 = $1.30
Growth rate for next 3 years is 22% and a constant growth rate (g) of 7% thereafter.
D1 = $1.3000 * 1.22 = $1.5860
D2 = $1.5860 * 1.22 = $1.9349
D3 = $1.9349 * 1.22 = $2.3606
D4 = $2.3606 * 1.07 = $2.5258
Required Return, rs = 12%
P3 = D4 / (rs - g)
P3 = $2.5258 / (0.12 - 0.07)
P3 = $50.5160
P0 = $1.586/1.12 + $1.9349/1.12^2 + $2.3606/1.12^3 +
$50.516/1.12^3
P0 = $40.60
Current Share Price = $40.60
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