Question

The General Metal Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then increasing its dividend by 5% a year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share if the required rate of return is 9.25%?

Group of answer choices

$35.63

$38.19

$41.05

$43.19

$45.8

Answer 1

Annual Dividend just paid = $1.00 per share

Annual Dividend growth rate for next 4 years (g) = 20%

Growth rate thereafter(g1) = 5%

Required rate of return = 9.25%

Calculating the Current price of Share:-

P0 = $1.0984 + $1.2065 + $1.3252 + $1.4556 + $35.9616

P0 = $41.0473

So, the current value of one share is $41.05

Hence, Option C

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