Question

McGaha Enterprises expects earnings and dividends to grow at a rate of 36% for the next 4 years, after the growth rate in earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? Select the correct answer.

a. $42.82

b. $40.48

c. $41.26

d. $39.70

e. $42.04

Answer 1

Calculate the current price of the stock as follows:

Formulas:

Thank you.