Question

Rocket Medical Devices Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 20% for the next 3 years, after which competition will probably reduce the growth rate in earnings and dividends to 15% for the next two years, and then to a long-term growth of 3% forever. The company’s last dividend, D0, was $0.80, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 2.00%.


What is the current fair market price of the common stock? Calculate!

Answer 1

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