Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 p
ID: 2741806 • Letter: S
Question
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $2.80, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $2.80, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
If D0 = $2.80, then D1 = 2.80 * 1.30 = $3.64 , D2 = 3.64 * 1.30 = $4.73 , D3 = 4.73 * 1.30 = $6.15
P3 = D3 * (1 + g) / R - g = $6.15 * 1.05 / 0.11 - 0.05 = $107.63
Current share price = (107.63 + 6.15) / (1.11)^3 + 4.73 / (1.11)^2 + 3.64 / 1.11 = $90.32 per share
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.