ABC common stock is expected to have extraordinary growth of 20% per year for 2 years, after which the growth rate will settle into a constant 6%. If the discount rate is 15% and the most recent dividend was $2.50, what should be the approximate current share price?
A) $31.16
B) $33.23
C) $37.39
D)$47.77

Question

Quizplus · Accepted Answer

Price = ($2.50 × 1.2)/1.15 + ($2.50 × 1.2²)/1.15² + [($2.50 × 1.2² × 1.06)/(.15 - .06)]/1.15² = $37.39

ABC Common Stock Is Expected to Have Extraordinary Growth of 20