Thirsty Cactus Corp. just paid a dividend of $1.20 per share. The dividends are

Question

Thirsty Cactus Corp. just paid a dividend of $1.20 per share. The dividends are expected to grow at 15 percent for the next eight years and then level off to a growth rate of 5 percent indefinitely. If the required return is 10 percent, what is the price of the stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

Thirsty Cactus Corp. just paid a dividend of $1.20 per share. The dividends are expected to grow at 15 percent for the next eight years and then level off to a growth rate of 5 percent indefinitely. If the required return is 10 percent, what is the price of the stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the answer as follows:

Price = 1.20*(1+.15)^1/(1+.10)^1 + 1.20*(1+.15)^2/(1+.10)^2 + 1.20*(1+.15)^3/(1+.10)^3 + 1.20*(1+.15)^4/(1+.10)^4 + 1.20*(1+.15)^5/(1+.10)^5 + 1.20*(1+.15)^6/(1+.10)^6 + 1.20*(1+.15)^7/(1+.10)^7 + 1.20*(1+.15)^8/(1+.10)^8 + 1.20*(1+.15)^8*(1+.05)/(1+.10)^8*(.10 -.05) = 47.75

Answer is 47.75.

Thanks.

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