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BootStrap Beverages Inc

Finance Nov 03, 2020

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

Expert Solution

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