Answered

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Growing, Inc. is a firm that is experiencing rapid growth. The firm yesterday paid a dividend of $3.40. You believe that dividends will grow at a rate of 19.0% per year for two years, and then at a rate of 7.0% per year thereafter. You expect the stock will sell for $17.17 in two years. You expect an annual rate of return of 22.0% on this investment. If you plan to hold the stock indefinitely, what is the most you would pay for the stock now

Sagot :

Answer:

$18.09

Explanation:

The computation of the current stock price is shown below:

Particulars   Dividend or amount   PVIF at 22%       Present value

D1                  $4.05                        0.820       $3.32          

($3.40 × 1.19)

D2                 $4.81                         0.672         $3.23

($4.05 × 1.19)

Stock price in 2 years $17.17         0.672         $11.54

Current stock price                                            $18.09

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