Problem 7-05 Nonconstant Growth Valuation A company currently pays a dividend of $3.5 per share (D0 = $3.5)....

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Finance

Problem 7-05
Nonconstant Growth Valuation
A company currently pays a dividend of $3.5 per share(D₀ = $3.5). It is estimated that the company's dividendwill grow at a rate of 19% per year for the next 2 years, and thenat a constant rate of 5% thereafter. The company's stock has a betaof 1.2, the risk-free rate is 5%, and the market risk premium is4%. What is your estimate of the stock's current price? Do notround intermediate calculations. Round your answer to the nearestcent.
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Use the capital asset pricing model CAPM to find the required return of the stock Under the Capital Asset pricing model Rs Rf BetaRmRf Rs is the required return See Answer

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Problem 7-05Nonconstant Growth ValuationA company currently pays a dividend of $3.5 per share(D0 = $3.5). It is estimated that the company's dividendwill grow at a rate of 19% per year for the next 2 years, and thenat a constant rate of 5% thereafter. The company's stock has a betaof 1.2, the risk-free rate is 5%, and the market risk premium is4%. What is your estimate of the stock's current price? Do notround intermediate calculations. Round your answer to the nearestcent.$