Need math help: What is the value per share of your Firm's stock?

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Mathematics

Description

Your company has a required rate of return 7%. The company has completed a new
20
project that
is expected to grow dividends at a rate of 50% the first year an
d 25% the
following year, after which growth should be at a constant rate of 6%. The last dividend paid was 1.00. What is the value per share of your Firm's stock?

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Explanation & Answer

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9Rerured rate of returnKe7%
Constant Growth rateg6%
Last DividedD01
Year 1Year 2
Dividend1.51.875
Value of future dividends
Using formula
P0 = D1/Ke-g$ 198.75
D1 = 1.875*106%
Total1.5200.625
Present value factor (7%)0.9345790.873439
Present value$  1.40$ 175.23
Total present value$ 176.64


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