Answer:
The Current share price is $94.79
Explanation:
Dividend Growth Model determines the share price of a company which offers perpetual dividend with stable growth. It is the expected dividend of a share divided by the net return rate of growth rate
.
According to given data
Last dividend = D0 = $3.40
Rate of return = 15%
Growth rates:
For 3 years = 29% per year
After 3 years = 7.3% in perpetuity
Dividend after 3 years = D3 = 3.40 x ( 1 + 0.29 )^3 = $7.30
We can calculate the price of share using following formula:
Price of share = D3 / Rate of return - Growth rate
Price of share = $7.30 / 15% - 7.3% = $7.30 / 7.70% = $94.79