Starskeep, Inc., is a fast growing technology company. The firm projects a rapid growth of 40 percent for the next two years and then a growth rate of 20 percent for the following two years. After that, the firm expects a constant-growth rate of 8 percent. The firm expects to pay its first dividend of $1.25 a year from now. If your required rate of return on such stocks is 20 percent, what is the current price of the stock? (Do not round intermediate calculations. Round final answer to two decimal places.)

Question

Quizplus · Accepted Answer

The correct answer is A because the current price of the stock is $15.63. This is calculated using the dividend discount model, which takes into account the expected dividends and growth rates of the stock.