A company currently pays a dividend of $2 per share, D0 = 2. It is estimated tha

Question

A company currently pays a dividend of $2 per share, D0 = 2. It is estimated that the company's dividend will grow at a rate of 19% percent per year for the next 2 years, then the dividend will grow at a constant rate of 8% thereafter. The company's stock has a beta equal to 1.9, the risk-free rate is 4.5 percent, and the market risk premium is 3 percent. What is your estimate is the stock's current price? Round your answer to the nearest cent.

*I keep getting 40.31 and am not sure where I am going wrong.

Explanation / Answer

D0 = $2.00
D1 = $2.00(1.19) = $2.38
D2 = $2.00(1.19)^2 = $2.8322
D3 = $2.8322(1.08) = $3.058776

Rs = Rf +(bi* RPm)
Rs = 4.5 +(1.9*3)
Rs = 10.2
PVDiv = $2.38/(1.102) + $2.8322/(1.102)2
= $4.49188
P2 = D3/(rs

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