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Marcel Co. is growing quickly. Dividends are expected to grow at a 19 percent rate for...

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Finance

Marcel Co. is growing quickly. Dividends are expected to grow ata 19 percent rate for the next 3 years, with the growth ratefalling off to a constant 7 percent thereafter.

  

Required:

If the required return is 12 percent and the company just paid a$1.90 dividend. what is the current share price?

Options

$49.99

$56.32

$52.93

$55.21

$54.11

Answer & Explanation Solved by verified expert
4.1 Ratings (799 Votes)

i ii iii iv=i+iii v vi=iv*v
year Dividend Terminal value Cash flow PVIF @ 12% present value
1       2.261 =1.9*119%          2.26 0.892857          2.02
2       2.691 =2.261*119%          2.69 0.797194          2.14
3       3.202 =2.691*119%                 68.52       71.72 0.71178       51.05
         4.95       55.21
therefore price today =                 55.21
ans =                 55.21
Computation of terminal value = =dividend in year 3/(required rate - growth rate)
=3.202*107%/(12%-7%)
                68.52

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Transcribed Image Text

Marcel Co. is growing quickly. Dividends are expected to grow ata 19 percent rate for the next 3 years, with the growth ratefalling off to a constant 7 percent thereafter.  Required:If the required return is 12 percent and the company just paid a$1.90 dividend. what is the current share price?Options$49.99$56.32$52.93$55.21$54.11

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