What is the current share price

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Reference no: EM132154505

Great Pumpkin Farms (GPF) just paid a dividend of $3.50 on its stock. The growth rate in dividends is expected to be a constant 5% per year, indefinitely. Investors require a 14% return on the stock for the first three years, and then a 10% return thereafter. What is the current share price?

P3 = D3 (1 + g) / (R - g) = D0 (1 + g)4 / (R - g) = $3.50 (1.05)4 / (.10 - .05) = $85.09

P0 = $3.50(1.05) / 1.14 + $3.50(1.05)2 / (1.14)2 + $3.50(1.05)3 / (1.14)3 + $85.09 / (1.14)3

P0 = 66.36 for P3= 3.50(1.05)^4, why not 3.50(1.05)^3 ?

Reference no: EM132154505

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