MDK, Inc. is a high growth firm that has never paid a dividend. The company just issued a press release stating that next year it plans on paying an annual dividend of $0.34. It also stated that dividends are expected to increase by 40% a year for each of the following four years and then increase by 4% annually thereafter. The required rate of return on this stock is 15%. What is the expected price per share of MDK stock six years from now?

Question

Quizplus · Accepted Answer

The correct answer is D because the expected price per share of MDK stock six years from now is $12.84. This is calculated by using the dividend discount model, which takes into account the expected dividends and the required rate of return.

MDK, Inc Is a High Growth Firm That Has Never Paid