Question

Marcel Co. is growing quickly. Dividends are expected to grow at a 16 percent rate for the next 3 years, with the growth rate falling off to a constant 3 percent thereafter.

If the required return is 8 percent and the company just paid a $3.70 dividend. what is the current share price?

Answer #1

Price = PV of Cash flows from it.

Computation of DIvidends:

P3 = D4 / ( Ke - g)

= $ 5.95 / ( 0.08 - 0.03)

= $ 5.95 / 0.05

= $ 119

P0 = PV of Cash flows from it.

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