Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 32 pe

Question

Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 32 percent for the next three years, with the growth rate falling off to a constant 6.7 percent thereafter.

If the required return is 14 percent and the company just paid a $3.10 dividend, what is the current share price? (Hint: Calculate the first four dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

If the required return is 14 percent and the company just paid a $3.10 dividend, what is the current share price? (Hint: Calculate the first four dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

D0 = 3.1

D1= 3.1*1.32

D2 = 3.1*1.32^2

D3 = 3.1*1.32^3

D4 = 3.1*1.32^3*(1+6.7%)

Current share price = 3.1*1.32/1.14 +3.1*1.32^2/1.14^2 + 3.1*1.32^3/1.14^3 + (3.1*1.32^3*(1+6.7%)/(14%-6.7%))/1.14^3=$82.90

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