The Miller Milk Company has just come up with a new lactose-free dessert product

Question

The Miller Milk Company has just come up with a new lactose-free dessert product for people who can't eat or drink ordinary dairy products. Management expects the new product to fuel sales growth at 34% for about two years. After that competitors will copy the idea and produce similar products, and growth will return to about 3%, which is normal for the dairy industry in the area. Miller recently paid an annual dividend of $2.70, which will grow with the company. The return on stocks similar to Miller's is typically around 8%. What is the most you would pay for a share of Miller? Round PVF values in intermediate calcualtions to four decimal places. Round the answer to two decimal places.

Explanation / Answer

share price= dividend/(K-g) =(2.7*1.03)/(8%-3%) 55.62

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