Thirsty Cactus Corp. just paid a dividend of $1.30 per share. The dividends are

Question

Thirsty Cactus Corp. just paid a dividend of $1.30 per share. The dividends are expected to grow at 16 percent for the next eight years and then level off to a growth rate of 5 percent indefinitely. If the required return is 11 percent, what is the price of the stock today?

Thirsty Cactus Corp. just paid a dividend of $1.30 per share. The dividends are expected to grow at 16 percent for the next eight years and then level off to a growth rate of 5 percent indefinitely. If the required return is 11 percent, what is the price of the stock today?

Explanation / Answer

stock price today= ((1.3*1.16)/(0.11-0.16))*(1-(1.16/1.11)^8)+1.3*((1.16)^8/(1.11)^8)*(1.05/(0.11-0.05))

=45.11

ans:stock price today= $45.11

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