8-18 Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter. If the required return is 10 percent, and the company just paid a dividend of $2.65, what is the current share price? Draw timeline Simplify problem step by step line, eperate of super T=3=the point of time when the constant growth phase starts. Do $2.65 D=$2.65 (1+0.3) D-$2.65 (1+0.3) D3-$2.65 (1 +0.3) D4 D3(1 +0.04)= $2.65 (1+0.3)(1+0.04) D2 1 D4 D (1 + R) 1 (1+R) + D 3 (1+R) (1 + R)^ (R- g) + PV of {D} + PV of {D} + PV of {D3} + {PVIF(0.10,3)} x {Value of (D4, D5, D6,..., Do) at time = 3} 2.65(1+0.3) 1 + + 2.65(1 +0.3) 2.65(1+0.3) (1 + 0.10) (1 + 0.10) (1 + 0.10) (1 + 0.10) (FYI= 3.1 31 81 81 82+3.701 239669+4.3741 92337+(0.751 31 4801 ) x (100.915533333) = 87.026584022 Po = = -+ + 2.65(1 + 0.3)(1 + 0.04) (0.10 -0.04)

Synovee Co, is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter. If the required return is 10 percent, and the company just paid a dividend of $2.65, what is the current share price? T=3= the point of time when the constant growth phase starts. D0=$2.65D1=$2.65(1+0.3)1D2=$2.65(1+0.3)2D3=$2.65(1+0.3)3D4=D3(10.04)=$2.65(1+0.3)3(1+0.04) P0=(1+R)1D1+(1+R)2D2+(1+R)3D3+(1+R)31(Rg)D4 PV of (D1)+PV of (D2)+PV of (D3)+{PViF(0.10,3)}( Value of (D4,D5,D6Dm) at time =3) =(1+0.10)12.65(1+0.3)1+(1+0.10)22.65(1+0.3)2+(1+0.10)32.65(1+0.3)3+(1+0.10)31(0.100.04)2.65(1+0.3)3(1+0.04)=87.026584022