Wasserman Corp. is growing quickly. Dividends are expected to grow at a 28 perce

Question

Wasserman Corp. is growing quickly. Dividends are expected to grow at a 28 percent rate for the next three years, with the growth rate falling off to a constant 7.4 percent thereafter.

If the required return is 16 percent and the company just paid a $3.45 dividend, what is the current share price? (Hint: Calculate the first four dividends.)

If the required return is 16 percent and the company just paid a $3.45 dividend, what is the current share price? (Hint: Calculate the first four dividends.)

Explanation / Answer

Current price= 3.45x1.28/1.16+(3.45x1.28^2/1.16^2)+(3.45x1.28^3/1.16^3)+[(3.45x1.28^3x1.074)/(.16-.074)1.16^3]= $70.53

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