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    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

    © BrainMass Inc. brainmass.com June 3, 2020, 6:25 pm ad1c9bdddf

    Solution Preview

    List all dividends prior to and including the first year of normal growth:
    D0 = 1.50
    D1 = 1.80

    Solution Summary

    With careful calculations, the solution shows the formulas to arrive at an answer for the price of the stock.