Synovec Corporation is expected to pay the following dividends over the next four years: $6.90, $17.90, $22.90, and $4.70. Afterward, the company pledges to maintain a constant 6 percent growth rate in dividends forever. If the required return on the stock is 10 percent, what is the current share price?

The current price of the stock is $126.55

Explanation:

The current price per share can be calculated using the dividends discount model where by future dividends are discounted back to the present value to calculate the price of a stock. The formula that will be used for this stock is as follows,

P0 = D1 / (1+r)  +  D2 / (1+r)^2  +  D3  / (1+r)^3  +  D4 / (1+r)^4  +  

[ (D4 * (1+g)  /  (r - g)) /  (1+r)^4 ]

P0 = 6.9 / (1+0.1)  +  17.9 / (1+0.1)^2  + 22.9 / (1+0.1)^3  +  4.7 / (1+0.1)^4  +  

[ (4.7 * (1+0.06)  /  (0.1 - 0.06))  /  (1+0.1)^4 ]

P0 = $126.55

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