Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 26 p

Question

Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 12 percent and the company just paid a dividend of $1.90, what is the current share price?

Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 12 percent and the company just paid a dividend of $1.90, what is the current share price?

Explanation / Answer

Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 26 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 12 percent and the company just paid a dividend of $1.90, what is the current share price?

Current share price = 1.90*1.26/1.12 + (1.90*1.26^2)/(1.12^2) + (1.90*1.26^3)/(1.12^3) + ((1.90*1.26^3*1.06)/(0.12-0.06))/(1.12^3)

Current share price = $ 55.04

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