Business Finance
nonconstant growth stock

Question Description

I need an explanation for this Business question to help me study.

Assume that the average firm in your company's industry is expected to grow at a constant rate of 4% and that its dividend yield is 6%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D1 = D0(1 + g) = D0(1.50)] this year and 25% the following year, after which growth should return to the 4% industry average. If the last dividend paid (D0) was $1.75, what is the value per share of your firm's stock? Round your answer to the nearest cent. Do not round your intermediate computations.

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Final Answer

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sallu (1)
Carnegie Mellon University

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