A fast-growing firm recently paid a dividend of $0.25 per share. The dividend is

Question

A fast-growing firm recently paid a dividend of $0.25 per share. The dividend is expected to increase at a 15 percent rate for the next three years. Afterwards, a more stable 10 percent growth rate can be assumed.

If an 11 percent discount rate is appropriate for this stock, what is its value today? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

A fast-growing firm recently paid a dividend of $0.25 per share. The dividend is expected to increase at a 15 percent rate for the next three years. Afterwards, a more stable 10 percent growth rate can be assumed.

Explanation / Answer

Hi,

Value of the Stock = .25*(1+15%)/(1+11%)^1 + .25*(1+15%)^2/(1+11%)^2 + .25*(1+15%)^3/(1+11%)^3 + .25*(1+15%)^3*(1+10%)/(1+11%)^3*(11%-10%) = $31.39

Answer is $31.39

Thanks.

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