Calculate: Current Price Per Share
Not what you're looking for?
Question: Club Auto Parts' last dividend was $0.50 and the company expects to experience no growth for the next two years. However, Club will grow at an annual rate of 5% in the third and fourth years and beginning with the fifth year, it should attain a 10 percent growth which it will sustain thereafter. Club has a required rate of return of 12 percent. What should be the current price per share and the price per share at the end of the second year?
a. $18.19; $25.07
b. $30.30; $25.06
c. $25.06; $30.30
d. $25.06; $18.19
e. None of the above
Purchase this Solution
Solution Summary
This solution is comprised of a detailed, step-wise response which shows all of the required formulas and calculations needed to derive the current share price and price per share at the end of the second year. The solution is very easy to follow.
Solution Preview
The price of the stock is calculated by taking the present value of the all future dividends paid by the company.
There are three growth periods, and we need to deal with them separately.
Year 1, 2 no ...
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance
This quiz test introductory finance topics.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Operations Management
This quiz tests a student's knowledge about Operations Management
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.