A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected to increase at a rate of 30 percent for the next four years. Afterwards, a more stable 7 percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this stock, what is its value?
A) $60.48
B) $60.18
C) $61.34
D) $73.86

Question

Quizplus · Accepted Answer

The correct answer is A because the value of the stock is $60.48. The dividend is expected to increase at a rate of 30 percent for the next four years, and then at a rate of 7 percent thereafter. The discount rate is 10 percent.

A Fast Growing Firm Recently Paid a Dividend of $0