can you please help me out here. I am stuck on this problem. I know ive done most of right but i cant get the final answer. please help and provide a solution so i can do it on my own. thanks,

Problem 7-05

Nonconstant Growth Valuation

A company currently pays a dividend of $4per share (D0= $4). It is estimated that the company's dividend will grow at a rate of 19% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.55, the risk-free rate is 8%, and the market risk premium is 4%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

Step-1, Calculation of the Required Rate of Return (Ke)

As per CAPM Approach, the Required Rate of Return is calculated as follows

Required Rate of Return = Risk-free Rate + (Beta x Market Risk Premium)

risk free

beta

8.00% + 1.55 * 8.00% = 20.40%

Step-2, Dividend for the next 2 years

Dividend per share in Year 0 (D0) = $4.00 per share

Dividend per share in Year 1 (D1) = $4.76 per share [$4.00 x 119%] = 4.7600

Dividend per share in Year 2 (D2) = $5.6644 per share [$4.760 x 119%] = 5.6644

Step-3, Share Price in Year 2

Dividend Growth Rate after Year 2 (g) = 6.00% per year

Required Rate of Return (Ke) = 20.40%

Share Price in Year 2 (P2) = D2(1 + g) / (Ke - g) = $1.8605(1 + 0.08) / (0.0960 - 0.08)

41.6962778 5.6644 = $2.0093 / 0.0160

1.06 $41.70 per share

0.204 wrong

0.06

6.004264

0.144 41.6962778

A company currently pays a dividend of $4 per share (DO = $4). It is estimated that the company's dividend will grow at a rate of 19%% per year for the next 2 years, and then at a constant rate of 6%% thereafter. The company's stock has a beta of 1.55, the risk-free rate is 8%%, and the market risk premium is 4%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent. Step-1, Calculation of the Required Rate of Return (Ke) As per CAPM Approach, the Required Rate of Return is calculated as follows Required Rate of Return = Risk-free Rate + (Beta x Market Risk Premium) risk free beta 8.00% + 1.55 * 8.00% = 20.40% Step-2, Dividend for the next 2 years Dividend per share in Year 0 (DO) = $4.00 per share Dividend per share in Year 1 (D1) = $4.76 per share [$4.00 x 119%] 4.7600 Dividend per share in Year 2 (D2) = $5.6644 per share [$4.760 x 119%] 5.6644 Step-3, Share Price in Year 2 =8+(1.4*3)=12.2% Dividend Growth Rate after Year 2 (g) = 6.00% per year D1=(2.25*1.15)=2.5875 Required Rate of Return (Ke) = 20.40% 0.204 D2=(2.5875*1.15)=2.975625 Share Price in Year 2 (P2) = D2(1 + g) / (Ke - g) 0.096 $1.8605(1 + 0.08) / (0.0960 - 0.08) 41.6962778 5.6644 =(2.975625*1.07)/(0.122-0.07) $2.0093 / 0.0160 1.06 61.22921 S 41.70 per share 0.204 wrong 0.06 46.64 6.004264 0.144 41.6962778