Motor Homes Inc: Calculate what should be the current price of the stock.
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Motor Homes Inc. (MHI) is presently in a stage of abnormally high growth because of
a surge in the demand for motor homes. The company expects earnings and dividends to
grow at a rate of 20 percent for the next 4 years, after which time there will be no growth
(g = 0) in earnings and dividends. The company's last dividend was $1.50. MHI's beta is
1.6, the return on the market is currently 12.75 percent, and the risk-free rate is 4 percent.
What should be the current price per share of common stock
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Solution Summary
With careful calculations, the solution shows the formulas to arrive at an answer for the price of the stock.
Solution Preview
List all dividends prior to and including the first year of normal growth:
D0 = 1.50
D1 = 1.80
...
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