Stock

You are considering purchasing shares of a publicly traded company. The next dividend paid by the company will be $4.15. The appropriate equity cost of capital for the company is 9.3%. the company expects growth to stabilize at a long run growth rate of 5.0%.

Year Growth Rate .

1 11.0%

2 18.0%

3 15.0%

4 10.0%

5 14.0%

6 14.0%

7 16.0%

• What is the present value of the cash equivalent
• what is the price of the stock of this company today
• By how much has the abnormal growth of the firm changed the value of the stock?