# The XYZ Company paid \$1.25 dividend yesterday. Its dividend growth rate is expected to be constant at 24.50% for 2 years, after which dividends are expected to grow at a rate of 5.95% forever. Its required return (rs) is 11.70%. What is the best estimate of the current stock price?Round your answer to two decimal places. For example, if your answer is \$345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. A. \$26.51B. \$38.50C. \$37.24D. \$35.98E. \$31.56

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The XYZ Company paid \$1.25 dividend yesterday. Its dividend growth rate is expected to be constant at 24.50% for 2 years, after which dividends are expected to grow at a rate of 5.95% forever. Its required return (rs) is 11.70%. What is the best estimate of the current stock price?

A. \$26.51
B. \$38.50
C. \$37.24
D. \$35.98
E. \$31.56
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Step 1

Current price of stock will consist present value of all future dividend.

The below expression will help to calculate price of the stock.

Step 2

Using formula for sum of infinite geometric progression, the above expression can be modified further, as after 2 years dividend growth rate is fixed and receives in perpetuity.

Step 3

Substitute \$1.25 for d, 0.245 for g1, 0.0595 for g2 and 11.7% for i ...

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