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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