Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 29 pe

Question

Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 29 percent for the next three years, with the growth rate falling off to a constant 7.8 percent thereafter.

If the required return is 15 percent and the company just paid a $3.65 dividend, what is the current share price? (Hint: Calculate the first four dividends.)

Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 29 percent for the next three years, with the growth rate falling off to a constant 7.8 percent thereafter.

Explanation / Answer

Statement showing Share price Particulars PVf@15% Amount PV Cash inflows(Dividend)                           0.8696                           4.71                             4.09 Cash inflows(Dividend)                           0.7561                           6.07                             4.59 Cash inflows(Dividend)                           0.6575                           7.84                             5.15 Cash inflows (Share Price)                           0.6575                      117.31                           77.14 Share price today                           90.97 P3 = 7.84*1.078/ (15%- (7.8%) P3 = 8.45/7.2% P3 = $113.33

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