Great Pumpkin Farms (GPF) just paid a dividend of $5 on its stock. The

QUESTION

Great Pumpkin Farms (GPF) just paid a dividend of $5 on its stock. The growth rate in dividends is expected to be a constant 3 percent per year indefinitely. Investors require a 16 percent return on the stock for the first 3 years, a 11 percent return for the next 3 years, and an 7 percent return thereafter. The current share price for GPF stock is $ . (Do not include the dollar sign ($). Round your answer to 2 decimal places
Years 0 1 2 3 4 5 6 7 Growth Rate 3% 3% 3% 3% 3% 3% 3% Required rate of return 16% 16% 16% 11% 11% 11% 7% Dividend per year after considering the growth ($) 5 5.15 5.3045 5.463635 5.627544 5.79637 5.970261 6.149369 Present value of dividends ($) 4.439655 3.942108¦

3.50032 3.707038 3.439864 3.191946 3.829518 Terminal value ($) 158.3463 Present value of terminal value ($) 98.61009 Price ($) 124.6605 Hence price of the GPF stock is $124.66.

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