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Non-constant Growth Valuation: What is your estimate of the stock's current price?

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A company currently pays a dividend of $2 per share, D(0) = $2. It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, then the dividend will grow at a constant rate of 7% thereafter. The company's stock has a beta equal to 1.2, the risk free rate is 7.5% and the market risk premium is 4%. What is your estimate of the stock's current price?

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Solution Summary

An estimate of the stock`s current price is given.

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Required rate of return r = rf+beta*market risk premium = ...

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