Question

Gamma Corp. is expected to pay the following dividends over the next four years: $5, $12, $18, and $1.80. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends, forever. If the required return on the stock is 14 percent, what is the current share price?

Answer 1

Answer:

The current share price is  $37.49(appx)

Explanation:

Consider the following calculations

current share price

= 5/(1+0.14) +12/(1+0.14)^2 + 18/(1+0.14)^3+1.8/(1.0.14)^4+1.8/(0.14-0.04)*(1+0.14)^4

=4.386+9.233+12.15+1.065+10.657

=$37.49 (appx)