Dividend Discount Model Synovec Corporation is growing quickly. Dividends are expected to grow at a rate of 30% for the next three years, with the growth rate falling off to a constant 7%, thereafter. If the required return is 13% and the company just paid a dividend of $2.55, what is the current share price? Hint: This is a two-stage model using the DDM (Gordon Growth Model) for the terminal value. You need to determine the present value of each dividends, and then add the present value of the terminal value (terminal value = D4/(1-g)). Note that the test I will not give you so many hints. Note: Enter your answer with two decimals and without the $ sign. That is, if your answer is $50.514 then enter 50.51.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Dividend Discount Model
Synovec Corporation is growing quickly. Dividends are expected to grow at a rate of 30% for
the next three years, with the growth rate falling off to a constant 7%, thereafter. If the
required return is 13% and the company just paid a dividend of $2.55, what is the current
share price?
Hint: This is a two-stage model using the DDM (Gordon Growth Model) for the terminal
value. You need to determine the present value of each dividends, and then add the present
value of the terminal value (terminal value = D4/(1-g)). Note that the test I will not give you
so many hints.
Note: Enter your answer with two decimals and without the $ sign. That is, if your answer is
$50.514 then enter 50.51.
Transcribed Image Text:Dividend Discount Model Synovec Corporation is growing quickly. Dividends are expected to grow at a rate of 30% for the next three years, with the growth rate falling off to a constant 7%, thereafter. If the required return is 13% and the company just paid a dividend of $2.55, what is the current share price? Hint: This is a two-stage model using the DDM (Gordon Growth Model) for the terminal value. You need to determine the present value of each dividends, and then add the present value of the terminal value (terminal value = D4/(1-g)). Note that the test I will not give you so many hints. Note: Enter your answer with two decimals and without the $ sign. That is, if your answer is $50.514 then enter 50.51.
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