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Determine the price of NVIDIA common stock

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Question - Suppose that NVIDIA Corporation (NVDA) stock is selling for $150.00. Analysts believe that the growth rate for NVDA will be 20% next year, 30% for the following 4 years, 10% for the following two years, and thereafter the growth rate will be 6% indefinitely. NVDA will pay a cash dividend of $.65 per share next year. Thereafter the dividend will grow by the same rate as the company. Stockholders require a return of 16 percent on NVIDIA's stock.

Required:

a) Based on the above assumptions, determine the price of NVIDIA's common stock.

b) Explain whether an investor should buy the stock.

Reference no: EM132223952

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