Answer:
current share price = $70.53
Explanation:
Share Price:
A share price is the amount it would cost to buy one share in a company.
Formula:
share price = future dividends * Present value of discount factor(16%, time period)
As the company just paid a dividend of $3.45 and dividends are expected to grow at a rate of 28 percent for the next three years so
Dividend for 1st year = (3.45*1.28) = $4.416
Dividend for 2nd year = (4.416*1.28) = $5.65248
Dividend for 3rd year = (5.65248*1.28) = $7.2351744
Now we need to calculate the value for 3rd year.
Formula:
Value after 3rd year = (Dividend for year 3*growth rate) / (required rate-growth rate)
Therefore by putting the values in the above formula, we get
Value after 3rd year = (7.2351744 * 1.074) / (0.16 - 0.074)
Value after 3rd year = $90.35555007
Therefore by putting the values in the share price formula, we get
current share price = 4.416 / 1.16 + 5.65248 / 1.16^2 + 7.2351744/1.16^3 + 90.35555007 / 1.16^3
current share price = $70.53
