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HakunaMatata has common stock that is expected to grow at a rate of 17% over the...

HakunaMatata has common stock that is expected to grow at a rate of 17% over the next year. After this first year, it will stabilize to a 3% long-term growth rate. If the dividend just paid (D0) was $1.65 and the required rate of return on the stock is 6%, what is the value of the stock today (to 2 decimals)?

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Answer #1
Dividend next year( DIV 1) $             1.93
Growth rate ( G) = 3.0%
Required rate of return(Ke) 6.0%
Stock price at year 1 = Div 1*(1+g) / (Ke-G)
1.93*1.03/(.06- .03)
$           66.28
Stock value today   = (1.93+66.28)* 1/1.06
$           64.35
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