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The current price of the stock

Avery industries jsut paid a dividend of $2.00 per share (i.e.,D0=$2.00). analysts expect the company's dividend to grow 25% for the next 2 yrs and 15% for the following 3 years. After 5 years the dividend is expected to grow at a constant rate of 5%. the required rate of return on the company's stock is 12%. what should be the current price of the company's stock? what should the stock be selling for at the end of year 3?

Solution Preview

The current price of the stock is the present value of all the future dividend payoffs from the stock.

Avery industries just paid a dividend of $2.00 per share (i.e.,D0=$2.00). The dividend is expected to grow 25% for the next 2 yrs
So payoff at the end of first year and second year is 2.00*(1+0.25) and ...

Solution Summary

The current price of the stock is emphasized.

$2.19