Upper Gullies Corp. just paid a dividend of $2.20 per share. The dividends are e

Question

Upper Gullies Corp. just paid a dividend of $2.20 per share. The dividends are expected to grow at 22 percent for the next eight years and then level off to a growth rate of 7 percent indefinitely. If the required return is 14 percent, what is the price of the stock today?

Upper Gullies Corp. just paid a dividend of $2.20 per share. The dividends are expected to grow at 22 percent for the next eight years and then level off to a growth rate of 7 percent indefinitely. If the required return is 14 percent, what is the price of the stock today?

Explanation / Answer

Hi,

Please find the detailed answer as follows

Current Stock Price = 2.20*(1+.22)^1/(1+.14)^1 + 2.20*(1+.22)^2/(1+.14)^2 + 2.20*(1+.22)^3/(1+.14)^3 + 2.20*(1+.22)^4/(1+.14)^4 + 2.20*(1+.22)^5/(1+.14)^5 + 2.20*(1+.22)^6/(1+.14)^6 + 2.20*(1+.22)^7/(1+.14)^7 + 2.20*(1+.22)^8/(1+.14)^8 + 2.20*(1+.22)^8*(1+.07)/(1+.14)^8*(.14 - .07) = $82.03

Answer is $82.03.

Thanks.

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