Stage of abnormally high growth

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Reference no: EM131054680

Motor Homes Inc. (MHI) is currently in a stage of abnormally high growth because of a surge in the demand for motor homes. The company expects earnings and dividends to grow at a rate of 20% for the next 4 years, after which time there will be a constant growth of 5% forever in earnings and dividends. The company’s last dividend was $1.50 (i.e., D0 = $1.5). a. If you require 18% rate of return on this stock, what should be the current stock price per share of MHI? b. Based on your calculation above, if the stock is currently selling for $25, should you buy the stock? Justify your answer.

Reference no: EM131054680

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