5. Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 32

Question

5. Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 32 percent for the next three years, with the growth rate falling off to a constant 7.7 percent thereafter.

If the required return is 14 percent and the company just paid a $1.80 dividend, what is the current share price? (Hint: Calculate the first four dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

If the required return is 14 percent and the company just paid a $1.80 dividend, what is the current share price? (Hint: Calculate the first four dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

current share Price= (1.8x1.32/1.14)+(1.8x1.32^2/1.14^2)+(1.8x1.32^3/1.14^3)+[(1.8x1.32^3x1.077)/1.14^3(.14-.077)]

= 2.08+2.41+2.79+47.78

=$55.06

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