Fast Growth Company just paid a dividend of $2

Finance Aug 10, 2020

Fast Growth Company just paid a dividend of $2.15 per share. Dividends are expected to grow at a constant rate of 18% per year. If you require a 20 percent return on stocks in this risk class, what is the value of the stock?

Expert Solution

Computation of the value of the stock:-

Value of stock = D1 / (Required return - Growth rate)

= $2.15 * (1 + 18%) / (20% - 18%)

= $2.537 / 2%

= $126.85

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