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Tyler Inc. just paid the last dividend of $2. Because of its strong financial position, the firm is expected to have a period of rapid growth: its dividend will grow at 20% for the next 2 years, after which the dividend will grow at a constant rate of 5% forever. If the firm has a required rate of return of 15%, what is its stock price 2 years from now

Respuesta :

Answer:

the stock price of two years from now is $30.24

Explanation:

The computation of the stock price of two years from now is shown below:

D1 = (2 × 1.2)

= 2.4

D2 = (2.4 × 1.2)

= 2.88

Now

Stock price after year 2 is

= (D2 × Growth rate) ÷ (Required return - Growth rate)

= (2.88 × 1.05) ÷ (0.15 - 0.05)

= $30.24

hence, the stock price of two years from now is $30.24

We simply applied the above formula so that the correct value could come

And, the same is to be considered

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