Cell-Talk is a rapidly growing firm. It plans to increase dividends by 25 percen

Question

Cell-Talk is a rapidly growing firm. It plans to increase dividends by 25 percent for each of the next three years and then allowing the dividend to grow at a constant 6% thereafter. The company just paid a dividend of $0.80 per share. What is the current value of one share of this stock if the required rate of return is 17%?

Cell-Talk is a rapidly growing firm. It plans to increase dividends by 25 percent for each of the next three years and then allowing the dividend to grow at a constant 6% thereafter. The company just paid a dividend of $0.80 per share. What is the current value of one share of this stock if the required rate of return is 17%?

Explanation / Answer

current value of share= .8x1.25/1.17+(.8x1.25^2/1.17^2)+(.8x1.25^3/1.17^3)+[(.8x1.25^3x1.06)/(.17-.06)1.17^3]= $ 12.14

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