Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 25 p
ID: 2653205 • Letter: S
Question
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 25 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $1.15, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 25 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $1.15, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Current Share price is 39.28 as shown below
Statement showing calculation of price Particulars Time PVF Amount PV Cash Inflows - Dividend(1.15*1.25) 1.00 0.9009 1.44 1.30 Cash Inflows - Dividend(1.44*1.25) 2.00 0.8116 1.80 1.46 Cash Inflows - Dividend(1.80*1.25) 3.00 0.7312 2.25 1.65 Cash Inflows - Price 3.00 0.7312 47.70 34.88 Price Now 39.28 Dividend at end of third year, D3 2.25 D4= D3(1+g) = 2.25*1.06 2.3850 Growth rate , g 6.0% ke 11.0% P3 = D4/ke-g P3 = 2.3850/11% - 6%) P3 = 2.3850/5%) P3 =47.70Related Questions
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