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A company currently pays a dividend of $2.00 per share (i.e., D 0 =$2.0). It is estimated that company's dividend will grow at a rate
A company currently pays a dividend of $2.00 per share (i.e., D0=$2.0). It is estimated that company's dividend will grow at a rate of 20% per year for the next three years, and the the dividend will grow at a constant rate of 4% thereafter. The company's stock has a beta of 1.5, the risk-free rate is 6%, and the market return is 12.50%. What is your estimate of the company's stock price at the end of year 3 (i.e., P3)?
| 1. | $37.569 | |
| 2. | None of the answers given are correct. | |
| 3. | $30.536 | |
| 4. | $35.00 | |
| 5. | $25.00 |
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