Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 23 percent for the next 3 years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 10 percent and the company just paid a $2.80 dividend. what is the current share price?
value of stock = Present value of dividends + Horizontal value
Horizontal value = dividend next year/(Required return - growth rate)
=>
horizontal value = 2.8 * 1.23^3 * 1.05/(0.1-0.05)
= 109.4189796
current share price
= 2.8*1.23/1.1 + 2.8*1.23^2/1.1^2 + 2.8*1.23^3/1.1^3 + 109.4189796/1.1^3
= 92.76
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 23 percent...
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