Question

the con the growth eto percent per The Bell Weather Co is a new firm in a rady growing industry. The company spawg on increasing divided by year. The company at pas a d ded in the amount of 20 p he What the current we of one share of the percent year lock the years and the bum p er M e Choice 52572 045 OOO 2015 94

Answer 1

Answer is $190.24

Last Dividend, D0 = $3.20

Growth rate for next 4 years is 18% and a constant growth rate (g) of 6% thereafter.

D1 = $3.2000 * 1.18 = $3.7760
D2 = $3.7760 * 1.18 = $4.4557
D3 = $4.4557 * 1.18 = $5.2577
D4 = $5.2577 * 1.18 = $6.2041
D5 = $6.2041 * 1.06 = $6.5763

Required Return, rs = 8.70%

P4 = D5 / (rs - g)
P4 = $6.5763 / (0.0870 - 0.0600)
P4 = $243.5667

P0 = $3.7760/1.087 + $4.4557/1.087^2 + $5.2577/1.087^3 + $6.2041/1.087^4 + $243.5667/1.087^4
P0 = $190.24

So, current stock price is $190.24