Synovec co. is growing quickly. dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. if the required return is 12 percent, and the company just paid a dividend of $3.85, what is the current share price?

Question

Synovec co. is growing quickly. dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. if the required return is 12 percent, and the company just paid a dividend of $3.85, what is the current share price?

Accepted Answer

The dividend yield for the next three years is given by:Given thatthe growth rate falls off to a constant 5 percent after three years, i.e. g = 0.05 and thatthe required return is 12 percent, i.e. R = 0.12, thenthe price of the shares at that time is given by:We then obtain the current price of the stock by determining the present value of the three dividends and the future price as follows:...

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Solved:

Synovec co. is growing quickly. dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. if the required return is 12 percent, and the company just paid a dividend of $3.85, what is the current share price?

Synovec co. is growing quickly. dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. if the required return is 12 percent, and the company just paid a dividend of $3.85, what is the current share price?