A fast-growing firm recently paid a dividend of $0.55 per share. The dividend is

Question

A fast-growing firm recently paid a dividend of $0.55 per share. The dividend is expected to increase at a 30 percent rate for the next four years. Afterwards, a more stable 13 percent growth rate can be assumed.

If a 14.5 percent discount rate is appropriate for this stock, what is its value

A fast-growing firm recently paid a dividend of $0.55 per share. The dividend is expected to increase at a 30 percent rate for the next four years. Afterwards, a more stable 13 percent growth rate can be assumed.

Explanation / Answer

PVF@14.5% Present value D1 $                           0.72 0.873 $                0.62 D2 $                           0.93 0.763 $                0.71 D3 $                           1.21 0.666 $                0.80 D4 $                           1.57 0.582 $                0.91 D5 $                           1.78 P4 $                      118.34 0.582 $              68.85 1.78/(14.5%-13%) Share price $              71.90

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