Marcel Co. is growing quickly. Dividends are expected to grow at a 23 percent ra

Question

Marcel Co. is growing quickly. Dividends are expected to grow at a 23 percent rate for the next 3 years, with the growth rate falling off to a constant 5 percent thereafter.

If the required return is 10 percent and the company just paid a $2.90 dividend. what is the current share price? (Do not round your intermediate calculations.)

rev: 09_18_2012

$88.33

$97.99

$94.15

$96.07

$92.01

Marcel Co. is growing quickly. Dividends are expected to grow at a 23 percent rate for the next 3 years, with the growth rate falling off to a constant 5 percent thereafter.

Explanation / Answer

$96.07 Statement showing Share price Particulars Time PVf@10% Amount PV Cash inflows(Dividend)                     1.00            0.9091                           3.57                             3.24 Cash inflows(Dividend)                     2.00            0.8264                           4.39                             3.63 Cash inflows(Dividend)                     3.00            0.7513                           5.40                             4.05 Cash inflows (Share Price)                     3.00            0.7513                      113.33                           85.15 Share price today                           96.07 P3 = 5.40*1.05/ (10%- (5%) P3 = 5.67/5% P3 = $113.33

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