(7–5)

Nonconstant Growth Valuation A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the riskfree rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?

INTERMEDIATE PROBLEMS 6–16