A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected to increase at a rate of 30% rate for the next 4 years. Afterwards, a more stable 7% growth rate can be assumed. If a 10% discount rate is appropriate for this stock, what is its value?

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% for the next 4 years, and then at a rate of 7% thereafter. The discount rate is 10%.

A Fast Growing Firm Recently Paid a Dividend of $0