8-11: Valuing Common Stocks with the Dividend Growth Model

Problem 8-5 Nonconstant Growth Valuation

A company currently pays a dividend of $1.75 per share (D0 = $1.75). It is estimated that the company's dividend will grow at a rate of 22% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.35, the risk-free rate is 5.5%, and the market risk premium is 4%. What is your estimate of the stock's current price? Round your answer to the nearest cent.