Thirsty Cactus Corp. just paid a dividend of $1.90 per share. The dividends are

Question

Thirsty Cactus Corp. just paid a dividend of $1.90 per share. The dividends are expected to grow at 22 percent for the next eight years and then level off to a growth rate of 6 percent indefinitely. If the required return is 13 percent, what is the price of the stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

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Thirsty Cactus Corp. just paid a dividend of $1.90 per share. The dividends are expected to grow at 22 percent for the next eight years and then level off to a growth rate of 6 percent indefinitely. If the required return is 13 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:

D1 = 1.90*(1+.22) = 2.32

D2 = 1.90*(1+.22)^2 = 2.83

D3 = 1.90*(1+.22)^3 = 3.45

D4 = 1.90*(1+.22)^4 = 4.21

D5 = 1.90*(1+.22)^5 = 5.14

D6 = 1.90*(1+.22)^6 = 6.26

D7 = 1.90*(1+.22)^7 = 7.64

D8 = 1.90*(1+.22)^8 = 9.32

D9 = 9.32*(1+.06) = 9.88

Terminal Value = 9.88/(.13 -.06) = 141.14

Price Today = 2.32/(1+.13)^1 + 2.83/(1+.13)^2 + 3.45/(1+.13)^3 + 4.21/(1+.13)^4 + 5.14/(1+.13)^5 + 6.26/(1+.13)^6 + 7.64/(1+.13)^7 + 9.32/(1+.13)^8 + 141.14/(1+.13)^8 = 74.88

Answer is 74.88

Thanks.

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