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What should be the current price of xyz company stock

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XYZ company discovered a new type of cleaning cloth that is extremely absorbent. It is expected that the company will experience (beginning now) an unusually high growth rate (20 percent) during the 3-year period it has exclusive rights to the patent for manufacturing this material. However, beginning with the fourth year the company's competition will have access to the secret production for the cleaning cloth and from that time on the company will a assume a normal growth rate of 8 percent annually. During the rapid growth period, the company's dividend payout ratio will be relatively low (20 percent of earnings per share), to conserve funds for reinvestment. However, during the constant growth phase the dividend payout will be increased to 50 percent. If the earnings per share last year, Eo, were $2.00 per share and the cost of equity is 10 percent, then what should be the current price of XYZ company stock?

Reference no: EM131737339

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