Company z is experiencing a period of rapid growth the...

Company Z is experiencing a period of rapid growth. The earnings and dividends are expected to grow at a rate of 18 percent during the next 2 years, 15 percent in the third year, and then at a constant rate of 6 percent thereafter. The last dividend payment was $1.15 and the required rate of return on the stock is 12 percent. A. Calculate the value of the stock today. B. Calculate the value of the stock at 1 year (P1) and 2 years (P2).

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00:01 Okay, so i see that you need help with this.

00:02 It says company z is experiencing a period of rapid growth.

00:05 So we have company z.

00:09 And the earnings and dividends are expected to grow at a rate of 18 % during the next two years.

00:21 And 15 % in the third year.

00:28 And then a constant rate of 6 % thereafter.

00:33 The last dividend payment was, so last dividend, payment was a dollar 15 and the required rate of return on the stock required rate of return on the stock is 12%.

01:03 It wants you to, a, calculate the value of the stock today, b, calculate the value of the stock in one year and then in two years.

01:11 So the first thing that you need to do is to calculate the expected dividends.

01:17 So year one is $115 times 1 plus 0 .18 and that is $136.

01:32 Then in year two, that is going to be $1 .36 times 1 plus 0 .0 .18.

01:45 And that is going to be then 1 .3 .8.

01:47 And that is going to be then 1 .36 times 1 plus 0 .18.

01:55 That is $1 .60.

02:01 We'll say $1 .61 because it's 1 .6048.

02:08 Then we have year three.

02:15 That is going to be $1 .61 times 1 plus 0 .15.

02:30 And that is going to be $1 .85.

02:32 And that is going to be $1 .85.