Question

Marcel Co. is growing quickly. Dividends are expected to grow at a 20 percent rate for the next 3 years, with the growth rate falling off to a constant 5 percent thereafter. Required: If the required return is 9 percent and the company just paid a $3.90 dividend. what is the current share price?

Answer #1

Hello Sir/ Mam

**YOUR REQUIRED
ANSWER IS $150.83**

Given that:

g for 3 years = 20%

Afterwards = 5%

Hence, at given growth rates:

Years | Dividends |

0 | $3.90 |

1 | $4.68 |

2 | $5.62 |

3 | $6.74 |

4 | $7.08 |

Hence,

Years | Dividends | PVF | PV |

0 | $3.90 | ||

1 | $4.68 | 0.917431 | $4.29 |

2 | $5.62 | 0.841680 | $4.73 |

3 | $6.74 | 0.772183 | $5.20 |

3 | $176.90 | 0.772183 | $136.60 |

PV | $150.83 |

I hope this solves your doubt.

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