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# Assume the stock is selling at \$30.29. What would the stock price be if its dividends were expected to have zero growth?

1. Assume the stock is selling at \$30.29. What would the stock price be if its dividends were expected to have zero growth?

Now assume the company is expected growth of 30% for the next 3 years, then to return to its long-run constant growth rate of 6%. What is the stock's value under these conditions?

2. Is the stock price based more on long-term or short-term expectations? Answer by finding the % of company A's current stock price based on dividends expected in more than 3 years in the future.

#### Solution Preview

1.Assume the stock is selling at \$30.29. What would the stock price be if its dividends were expected to have zero growth?
If the firm's dividend doesn't grow, and remains \$2 every year, the firm's Rr = 13%,
Then Po = D / Rr = \$15.38

Now assume the company is expected growth of 30% for the next 3 years, then ...

#### Solution Summary

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\$2.19