Question

McGaha Enterprises expects earnings and dividends to grow at a rate of 48% for the next 4 years, after the growth rate in earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?

Select the correct answer.

a. $55.40

b. $55.10

c. $54.20

d. $54.50

e. $54.80

Answer 1