Thirsty Cactus Corp. just paid a dividend of $1.40 per share. The dividends are

Question

Thirsty Cactus Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow at 17 percent for the next eight years and then level off to a growth rate of 5 percent indefinitely. If the required return is 12 percent, what is the price of the stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

Thirsty Cactus Corp. just paid a dividend of $1.40 per share. The dividends are expected to grow at 17 percent for the next eight years and then level off to a growth rate of 5 percent indefinitely. If the required return is 12 percent, what is the price of the stock today? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the answer as follows:

Stock Price = 1.40*(1+.17)^1/(1+.12)^1 + 1.40*(1+.17)^2/(1+.12)^2 + 1.40*(1+.17)^3/(1+.12)^3 + 1.40*(1+.17)^4/(1+.12)^4 + 1.40*(1+.17)^5/(1+.12)^5 + 1.40*(1+.17)^6/(1+.12)^6 + 1.40*(1+.17)^7/(1+.12)^7+ 1.40*(1+.17)^8/(1+.12)^8+ 1.40*(1+.17)^8*(1+.05)/(1+.12)^8*(.12 -.05) = 43.48

Answer is 43.48

Thanks.

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