Synovec Corporation is expected to pay the following dividends over the next four years: $7, $13,...
Synovec Corporation is expected to pay the following dividends over the next four years: $7, $13, $18, and $3.25. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 10.4 percent, what is the current share price?
Homework Answers
Value after year 4=(D4*Growth rate)/(Required rate-Growth rate)
=(3.25*1.05)/(0.104-0.05)
=$63.1944(Approx).
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=7/1.104+13/1.104^2+18/1.104^3+3.25/1.104^4+63.1944/1.104^4
=$75.11(Approx).
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