Homework answers / question archive / Jake Ltd

Jake Ltd

Accounting

Share With

Jake Ltd., is a fast growth share and expects to grow at a rate of 25 percent for the next four years. It then will settle to a constant-growth rate of 10 percent. The first dividend will be paid out in year 3 and will be equal to $5.00. If the required rate of return is 17.47 percent, what should the current price of the share be?

a.

$54.70

b.

$47.51

c.

$42.57

d.

$48.90