R) E. Lee recently took his company public through an initial public offering. He is expanding the business quickly to take advantage of an otherwise unexploited market. Growth for his company is expected to be 40 percent for the first three years and then he expects it to slow down to a constant 15 percent. The most recent dividend (D0) was $0.75. Based on the most recent returns, the beta for his company is approximately 1.5. The risk-free rate is 8 percent and the market risk premium is 6 percent. What is the current price of Lee's stock?
A) $77.14
B) $75.17
C) $67.51
D) $73.88
E) $93.20

Question

Quizplus · Accepted Answer

The correct answer is A because the current price of Lee's stock is $77.14. This is calculated using the Gordon Growth Model, which takes into account the company's expected growth rate, dividend yield, and risk.

R) E Lee Recently Took His Company Public Through an Initial