A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to increase at a rate of 15% rate for the next 3 years. Afterwards, a more stable 6% 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 $33.54. The dividend is expected to increase at a rate of 15% for the next 3 years, and then at a rate of 6% thereafter. The discount rate is 10%.

A Fast Growing Firm Recently Paid a Dividend of $1