Question

# Sea Side, Inc., just paid a dividend of \$2.24 per share on its stock. The growth...

Sea Side, Inc., just paid a dividend of \$2.24 per share on its stock. The growth rate in dividends is expected to be a constant 6.3 percent per year indefinitely. Investors require a return of 20 percent on the stock for the first three years, then a return of 15 percent for the next three years, and then a return of 13 percent thereafter. What is the current share price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Value of Stock is calculated by growing dividends at 6.3% per year, and discounting it by different required rates as given,

Then finding terminal value as 2.24(1.063)7/(0.13 - 0.063)

Current Value of Stock = 2.24((1.063)/(1.20)) + 2.24((1.063)/(1.20))2 + 2.24((1.063)/(1.20))3 + 2.24((1.063)/(1.15))4 + 2.24((1.063)/(1.15))5 + 2.24((1.063)/(1.15))6 + 2.24(1.063)7/(0.13 - 0.063)

Current Value of Stock = 1.98 + 1.76 + 1.56 + 1.63 + 1.51 + 1.40 + 51.27

Current Value of Stock = \$61.11

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