$(1$ point$)$ D$(1$ point$)$ D

$($l point$)$ D&E Corp. is growing quickly. Dividends are expected to grow at a rate of $25$ percent for the next three years, with the growth rate falling off to a constant $4\mathrm{.}5$ percent, thereafter. If the required return is $10\mathrm{.}5$ percent and the company just paid a dividend of $$3\mathrm{.}15,$ what is the current share price?

USING THE DIVIDEND GROWTH MODEL TO FIND R

Start with the Dividend Growth Model:

$P_0=\frac{D_0(1+g)}{R-g}=\frac{D_1}{R-g}$

Rearrange and solve for $R$ :

$R=\frac{D_1}{P_0}+g$

Dividend $+$ Capital Gains

Yield

Yield