Whizzkids, Inc., is experiencing a period of rapid growth. Earnings and dividends per share are expected to grow at a rate of 18 percent during the next two years, 15 percent in the third year, and at a constant rate of 6 percent thereafter. Whizzkids’ last dividend, which has just been paid, was $1.15. If the required rate of return on the stock is 12 percent, what is the price of a share of the stock today?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 13P
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Whizzkids, Inc., is experiencing a period of rapid growth. Earnings and
dividends per share are expected to grow at a rate of 18 percent during
the next two years, 15 percent in the third year, and at a constant rate of
6 percent thereafter. Whizzkids’ last dividend, which has just been paid,
was $1.15. If the required rate of return on the stock is 12 percent, what
is the price of a share of the stock today?

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