Red Sun Rising just paid a dividend of $2.52 per share. The company said that it will increase the dividend by 30% and 25 over the next two years, respectively. After that, the company is expected to increase its annual dividend at 3.8%. If the required return is 11.8%, what is the stock price today?a. $45.44.b. $42.51.c. $47.08.d. $25.00.e. $48.72.

e. $48.72.

Explanation:

Dividend next year is = 2.52 * (1 + 30%) = $3.276

Dividend in two years = 3.276 * ( 1 + 25%) = $4.095

Then calculate the terminal value at year 2;

= (Dividend * (1 + growth rate))/ (Required return - growth rate)

= (4.095 * (1 + 3.8%)) / (11.8% - 3.8%)

= $53.132625‬

Add their present values up;

= (3.276/( 1 + 11.8%)) + (4.095 / (1 + 11.8%)) + (53.132625 / ( 1 + 11.8%))

= $48.72

answer; sales of books;

answertop managers;