Show calculation please Church Inc. is presently enjoying relatively ... Church

Question

Show calculation please

Church Inc. is presently enjoying relatively ... Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 40% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?

Explanation / Answer

Cost of Equity = 3 +5.5*1.20 = 9.60%

Price of common Stock = 1.25*1.40/1.096 + 1.25*1.40^2/1.096^2 + 1.25*1.40^3/1.096^3 + 1.25*1.40^4/1.096^4 + (1.25*1.40^4/0.096)/1.096^4

Price of common Stock = $ 44.24

Answer:

e) $ 44.24

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