Question

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 2.04 percent for the next three years, with the growth rate falling off to a constant 6.11 percent thereafter. If the required return is 10.51 percent and the company just paid a dividend of $9.33, what is the current share price? Omit the $ dollar sign and commas. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16).

Answer 1

Dividend paid = 9.33
Dividend for Year-1 = 9.33+2.04% = 9.52
Dividend for Year-2 = 9.52 +2.04% = 9.71
Dividend for Year-3 = 9.71+2.04% = 9.91
Dividend for Year-4 = 9.71+6.11% = 10.52
Horizon value at Year-3 = Dividend for Yeara-4 / (Required rate-Growth rate)
		10.52 / (10.51-6.11)% = 239.09
Current Stock price
Year	Cashflows	PVF at 10.51%		Present value
1	9.52	0.904895		8.614605
2	9.71	0.818836		7.950896
3	9.91	0.740961		7.342922
3	239.09	0.740961		177.1563
		current price		201.06
Answer is $ 201.06