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Growing, Inc. is a firm that is experiencing rapid growth. The firm yesterday paid a dividend...

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Finance

Growing, Inc. is a firm that is experiencing rapid growth. Thefirm yesterday paid a dividend of $7.10. You believe that dividendswill grow at a rate of 16.0% per year for two years, and then at arate of 10.0% per year thereafter. You expect the stock will sellfor $40.42 in two years. You expect an annual rate of return of23.0% on this investment. If you plan to hold the stockindefinitely, what is the most you would pay for the stock now?

Answer & Explanation Solved by verified expert
4.3 Ratings (686 Votes)

Most you wpuld pay now                     39.73
Statemnet showing Current Price
Particulars Time PVf 23% Amount PV
Cash inflows (Dividend)                          1.00                   0.8130                   8.2360                        6.70
Cash inflows (Dividend)                          2.00                   0.6610                   9.5538                        6.31
Cash inflows (Price)                        2.00                   0.6610                     40.42                     26.72
Current Price of Stock                     39.73

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Transcribed Image Text

Growing, Inc. is a firm that is experiencing rapid growth. Thefirm yesterday paid a dividend of $7.10. You believe that dividendswill grow at a rate of 16.0% per year for two years, and then at arate of 10.0% per year thereafter. You expect the stock will sellfor $40.42 in two years. You expect an annual rate of return of23.0% on this investment. If you plan to hold the stockindefinitely, what is the most you would pay for the stock now?

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