Valuation and Capital Budgeting - Differential Growth

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Corporate Finance, 9/e

Stephen A. Ross, Massachussetts Institute of Technology

Randolph W. Westerfield, University of Southern California

Jeffrey F. Jaffe, University of Pennsylvania

ISBN 978-0073105901

Valuation and Capital Budgeting

14. Differential Growth Hughes Co. is growing quickly. Dividends are expected to grow at a 25 percent rate for the next three years, with the growth rate falling off to a constant 7 percent thereafter. If the required return is 12 percent and the company paid a $2.40 dividend, what is the current share price.