Question

Oriole Corp. is expected to grow rapidly at a rate of 35 percent for the next seven years. The company's first dividend, to be paid three years from now, will be $5. After seven years, the company (and the dividends it pays) will grow at a rate of 6.1 percent. What is the value of Oriole stock with a required rate of return of 14 percent? (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

Answer 1

Answer = $ 113.59

Note:

Price = Present value of price at Year 7 + Present value of Dividends

= 89.22+24.37

= $ 113.59

Present value of price at Year 7 = [ (16.60*1.061)/(14%-6.1%)] * 0.40

= $ 89.22

Present Value of Dividends:

Year	Dividend	Discounting Factor(14%)	Present Value
1	-	-	-
2	-	-	-
3	5.00	0.67	3.35
4	6.75	0.59	3.98
5	9.11	0.52	4.74
6	12.30	0.46	5.66
7	16.61	0.40	6.64
Present Value of Dividends			24.37