ACC – Nonconstant Growth Valuation Problem



A company currently pays a dividend of $3.25 per share (D0 = $3.25). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 5% thereafter. The company’s stock has a beta of 1, the risk-free rate is 8%, and the market risk premium is 3%. What is your estimate of the stock’s current price? Round your answer to the nearest cent.


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