The growth in per share FCFE of SYNK, Inc. is expected to be 8% per year for the next two years, followed by a growth rate of 4% per year for three years. After this five-year period, the growth in per share FCFE is expected to be 3% per year, indefinitely. The required rate of return on SYNC, Inc. is 11%. Last year's per share FCFE was $2.75. The first three dividends are worth _______ today.
A) $12.14
B) $0
C) $3.81
D) $2.37
E) None of the above

Question

Quizplus · Accepted Answer

The first three dividends are worth $12.14 today because the present value of the first dividend is $2.75 / (1 + 0.11) = $2.48, the present value of the second dividend is $2.48 * (1 + 0.08) / (1 + 0.11) = $2.68, and the present value of the third dividend is $2.68 * (1 + 0.08) / (1 + 0.11) = $2.90.

The Growth in Per Share FCFE of SYNK, Inc