8-11: Valuing Common Stocks with the Dividend Growth Model Problem 8-5 Nonconstant Growth Valuation A company currently pays a dividend of $4 per share (D0 = $4)

Finance Dec 24, 2020

8-11: Valuing Common Stocks with the Dividend Growth Model

Problem 8-5
Nonconstant Growth Valuation

A company currently pays a dividend of $4 per share (D₀ = $4). It is estimated that the company's dividend will grow at a rate of 16% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 6.5%, and the market risk premium is 3%. What is your estimate of the stock's current price? Round your answer to the nearest cent.

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