DBP Inc. just paid a dividend of $2.50. The expected growth rate of dividend is 5 percent. The required return for investors in the first three years is 12 percent and 10 percent for the following three years. After those six years the required return is 8 percent. What is the current share price of the stock?

Question

DBP Inc. just paid a dividend of $2.50. The expected growth rate of dividend is 5 percent. The required return for investors in the first three years is 12 percent and 10 percent for the following three years. After those six years the required return is 8 percent. What is the current share price of the stock? 
 
A. $74.94  B. $73.00  C. $70.74

Work: 
2.5/ (1.12) + 2.5(1.05)/ (1.12^2) + 2.5(1.05^2)/ (1.12^3) + 2.75625/ (1.10) + 2.75625(1.05)/ (1.10^2) + 2.75625(1.05^2)/ (1.10^3) + 3.03876/ (.10-.05)
= 6.2866 + 7.1805 + 60.7753 = 74.66738855

Anonymous · Answer

74.98