Snapchat, Inc. (SNAP), is growing rapidly and you need to estimate the value of

Question

Snapchat, Inc. (SNAP), is growing rapidly and you need to estimate the value of its common stock. Dividends are expected to grow at a rate of 15 percent for the next three years, 10 percent over the following two years, and then 6 percent per year indefinitely. Required return is 16 percent, and the company just paid a dividend of $1.50. Questions: 1. What is the estimated terminal value? (15 point) 2. What is the estimated current share price of SNAP? (15 point) 3. Construct a one-way data table to show the estimated current share price of SNAP at different steady stage growth rates? (10 point)

Explanation / Answer

Estimated current price $32.85
The last column is the data price table

Year Dividend Pressent Value 0 $          1.50 $    1.50 1 $          1.73 $    1.73 $             0.82 $   32.85 2 $          1.98 $    1.98 $             1.10 $   32.03 3 $          2.28 $    2.28 $             1.46 $   30.93 4 $          2.51 $    2.51 $             1.86 $   29.47 5 $          2.76 29.260 Terminal value $   32.02 $           27.60 $   27.60 6 $          2.93 0

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