Tre-Bien, Inc., is a fast-growing technology company. Management projects rapid

Question

Tre-Bien, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.26 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 22 percent, what is the current value of the stock?

The required rate of return is 23.55 percent. Ninex Corp. has just paid a dividend of $3.12 and is expected to increase its dividend at a constant rate of 7.20 percent. What is the expected price of the stock three years from now?

Explanation / Answer

Calculation of the current Value of the stock Year Dividend Discount 1 2.938 0.8196721 1 2.408197 2 3.8194 0.6718624 1 2.566111 3 4.468698 0.5507069 1 2.460943 4 5.228377 0.4513991 1 2.360084 5 5.646647 0.451 7.142857 18.19027 Price of the stock 27.9856

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