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Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 7.5 percent thereafter. If the required return is 13 percent and the company just paid a dividend of $2.55, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)Share price

Respuesta :

Answer:

$109.45

Explanation:

The computation of current share price is given below:-

Dividend 1 = $2.55 × 1.3

= $3.32

Dividend 2 = $3.32 × 1.3

= $4.31

Dividend 3 = $4.31 × 1.3

= $5.60

Value after year 3 = (Dividend 3 × Growth rate) ÷ (Required rate - Growth rate)

= ($5.60 × 1.075) ÷ (0.13 - 0.075)

= $6.02 ÷ 0.055

= $109.45

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