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Homework answers / question archive / BootStrap Beverages Inc
BootStrap Beverages Inc. currently (2020) does not pay a dividend. However, the company is
expected to pay a $1.00 dividend two years from today (2022. The dividend is then expected to grow
at a rate of 20 percent a year for the following three years. After the dividend is paid in 2019,
it is expected to grow forever at a constant rate of 7 percent. Currently, the risk-free rate is 6
percent, market risk premium (rM - rRF) is 5 percent, and the stock's beta is 1.4. What should be
the price of the stock today?
a. $22.91
b. $21.20
c. $30.82
d. $28.80
e. $20.16
