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Chartreuse County Choppers Inc.: Two-Stage Dividend Growth

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Chartreuse County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 25% per year for the next 9 years before leveling off at 6% into perpetuity. The required return on the company's stock is 12%. If the dividend per share just paid was $1.05, what is the stock price?

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Solution Summary

The expert examines the two-stage dividend growth for Chartreuse County Choppers Inc.

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The stock price is the present value of all dividends. Since the dividends are growing at 25% for 9 years and then have a constant growth rate, we need to calculate the dividends for each of the first nine years. From year 10, the growth ...

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