Question

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $2.45, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Is anyone able to show steps to calculate this using an HP12C?

Answer 1

D1 = D0 x (1 + g1) = $2.45 x 1.30 = $3.1850

D2 = D1 x (1 + g1) = $3.1850 x 1.30 = $4.1405

D3 = D2 x (1 + g1) = $4.1405 x 1.30 = $5.38265

D4 = D3 x (1 + gC) = $5.38265 x 1.04 = $5.597956

V3 = D4 / (r - gC) = $5.597956 / (0.11 - 0.04) = $79.9708

To find the NPV, first clear the cash flow registers and then enter 0 into CF₀, then enter 3.185 into CF1, then enter 4.1405 into CF2, then enter 85.35345(=$5.38265 + $79.9708) into CF3. For the NPV we must supply a discount rate, so enter 11 into i, and then press f,PV. You'll find that the NPV is $68.64