Current share price according to dividend growth model

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Reference no: EM132000802

Bruin Inc. has recently announced a $2.2 EPS. Earnings are expected to grow at 5 percent per year forever. The company will not pay dividends on the stock over the next 6 years.

However, it will pay 30% of its earnings as dividend starting in year 7. The payout ratio will remain at 30% forever. Earnings will continue to grow at the same 5% rate.

If the required rate of return on this stock is 15 percent, what is the current share price according to the dividend growth model?

a. 2.01

b. 0.35

c. 4.01

d. 3.49

e. 0.40

Reference no: EM132000802

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