Suppose that DocuSign, Inc. (DOCU) is selling for $45.00. Analysts believe that the growth rate for DOCU will be 30% per year for the next three years, 25% per year for the following two years, and thereafter the growth rate will be 8% indefinitely. DOCU’s most recent cash dividend per share was $2.00. The dividend will grow by the same rate as the company. Stockholders require a return of 20 percent on DOCU’s common stock. Required:

(a) Based on the above assumptions, determine the price of DOCU’s common stock

(b) Explain whether an investor should buy the stock

Answer rating: 100% (QA)

To determine the price of DOCUs common stock we can use the dividend discount model DDM The DDM calculates the intrinsic value of a stock based on the ... View the full answer