Taylor Corp. is growing quickly. Dividends are expected to grow at a 29 percent

Question

Taylor Corp. is growing quickly. Dividends are expected to grow at a 29 percent rate for the next three years, with the growth rate falling off to a constant 6.3 percent thereafter.

If the required return is 15 percent and the company just paid a $2.90 dividend, what is the current share price? (Hint:Calculate the first four dividends.)

Also I have a BA II Plus calculator, is there a way to solve it on there? Thanks in advance/

Taylor Corp. is growing quickly. Dividends are expected to grow at a 29 percent rate for the next three years, with the growth rate falling off to a constant 6.3 percent thereafter.

Explanation / Answer

Hi,

Please find the answer as follows:

P0 = 2.9*(1.29) / 1.15 + 2.9*(1.29)^2/(1.15)^2 + 2.9*(1.29)^3/ (1.15)^3 + 2.9*(1.29)^3*(1.063)/(.15-.063)*(1.15)^3

P0 = 61

Price would be $61

Thanks.

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