Question
Grieb Electronics has been undergoing rapid growth for the last few years. The current dividend per share (D0) is $2/share and is expected to grow
Grieb Electronics has been undergoing rapid growth for the last few years. The current dividend per share (D0) is $2/share and is expected to grow at a rapid rate of 20% a year for the next three years. After that time, Griebs dividend growth is expected to slow to a more normal rate of 7% a year for an indefinite future. Because of the risk involved with such rapid growth, the required rate of return on the stock is 22%. Calculate todays theoretical (fair) price of the stock. HINT: use the 20% dividend growth rate to calculate the expected dividends for the first three years: D1, D2 and D3
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