Question

Caramel Co has been growing at the rate of 30 percent per year because of its...

Caramel Co has been growing at the rate of 30 percent per year because of its rapid expansion and growing sales. The manager believes this growth rate will last for three more years and that the rate will then drop to 15 percent per year. Dividends just paid were $5, and the required return is 20 percent. If the growth rate then remains at 15 percent indefinitely, what is the total value per share today?

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Answer #1

- Dividend just paid (D0) = $5

Growth rate of dividend for next 3 years(g) = 30%

Growth rate indefinately thereafter(g1) = 15%

Required rate of return(Ke) = 20%

Calculating the Price of Share:-

Price = 5.4167 + 5.86805 + 6.3571 + 146.2124

Price = $ 163.85

So, the price of share today is $ 163.85

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