Dumbo Inc just paid a dividend of 270 The company expects a

Dumbo Inc. just paid a dividend of $2.70. The company expects a super growth of 6% for the first 4 years and expect to grow at a constant rate of 3% after that. IF the current Ke is 6.5%, what is the expected price of this stock today?

Answer choices are:

100.31

104.52

67.59

88.65

92.69

Solution

Current Year Dividend per share [D0] = $2.70

Dividend in Year 4 [D4] = $2.70 x [1.06]⁴ = $3.4087

Ke = 6.50%

g = 3%

Stock Price Today = D4 [1+g] / [Ke-g]

= [$3.4087 x 1.03] / [0.065-0.03]

= $3.5109 / 0.035

= $100.31