ABC common stock is expected to have extraordinary growth in earnings and dividends of 20% per year for 2 years,after which the growth rate will settle into a constant 6%.If the discount rate is 15% and the most recent dividend was $2.50,what should be the approximate current share price?
A) $31.16
B) $33.23
C) $37.39
D) $47.77

Question

Quizplus · Accepted Answer

Price = ($2.50 × 1.2)/1.15 + ($2.50 × 1.2²)/1.15² + [($2.50 × 1.2² ×1.06)/(0.15 − 0.06)]/1.15² = $37.39

ABC Common Stock Is Expected to Have Extraordinary Growth in Earnings