Stock Valuation: Mack Industries
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Mack Industries just paid a dividend of $1.00 per share (i.e., D0 = $1.00). Analysts expect the company's dividend to grow 20 percent this year (i.e., D1 = $1.20), and 15 percent next year. After two years the dividend is expected to grow at a constant rate of 5 percent. The required rate of return on the company's stock is 12 percent. What should be the current price of the company's stock?
A. $12.33
B. $16.65
C. $16.91
D. $18.67
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Solution Summary
The solution explains how to calculate the current price of the stock. Work and answers are provided.
Solution Preview
The current stock price is the PV of all dividends.
Dividend in year 1 is 1X1.2 = 1.20
Dividend in year 2 is ...
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