posted by Samy on .
Thirsty Cactus Corp. just paid a dividend of $1.25 per share. The dividends are expected to grow at 28 percent for the next eight years and then level off to a 6 percent growth rate indefinitely. If the required return is 13 percent, what is the price of the stock today? (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16))
Christina, Erika, Rusty, Delaney, Samy -- several similar questions from the same person -- without any attempt at posting what you don't understand -- is a big turnoff for Jiskha tutors. We expect students to make an effort be and be explicit about what they don't understand.
In addition, we have no regular volunteer tutors whose expertise is finance.
1) N=8 / I%=28 / PV=1.25 therefore FV = 9.008
2) 9.008 x 1.06 = 9.54848
3) 9.54848 / (.13-.06) = 136.41
4) N=8 / I%=13 / FV= 136.41 therefore PV = 51.31
5) PV of Growing Annuity (From t=0 to infinity) = 18.25
6) 51.31 + 18.25 = 69.56