synovec co is Question 8 (of 10) value: 1.00 points Problem 8-18 Supernormal Gro

Question

synovec co is Question 8 (of 10) value: 1.00 points Problem 8-18 Supernormal Growth LO1] Synovec Co is growing quickly Dividends are expected to grow at a rate of 30 percent for the next three years with the growth rate falling off to a constant 5 percent thereafter. If the required return is 11 percent and the company just paid a dividend of $2.80. what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) Current share price Hints References eBook & Resources

Explanation / Answer

Step-1:Present value of next three years dividend Year Dividend Discount factor Present value 1 $       3.64      0.9009 $             3.28 2 $       4.73      0.8116 $             3.84 3 $       6.15      0.7312 $             4.50 Total $          11.62 step-2:Present Value of after year 3rd's dividend Present value of after year 3rd's dividend = (D3*(1+g)/(Ke-g))*DF3 Where, = (6.15*(1+0.05)/(0.11-0.05))*0.7312 D3 $       6.15 = $    78.70 g 5% Ke 11% DF3      0.7312 Step-3:Present value of all dividends Present Value = $          11.62 + $    78.70 = $          90.31 As per dividend discount model, price of stock is the present value of dividends. So, Price of Stock is $ 90.31

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