D1 = D0(1+g)
D1 = 2.35(1.22) = 2.867
D2 = 2.867(1.22) = 3.498
D3 = 3.498(1.22) = 4.267
D4 = 4.267(1.05) = 4.4806
(your answer will vary slightly depending on when and how much you round the dividend)
Terminal value...Price IN year 3, use Gordon growth model: P3 = D4 / (r - g)
P3 = 4.4806 / (0.12 - 0.05) = $64.00864, round to $64.01
Price at t=0: 2.867/1.12 + 3.498/1.12^2 + 4.267/1.12^3 + 64.01/1.12^3
= $53.94663, round to $53.95 (like I said, answer may vary slightly depending on the rounding you do as you go)
Hughes Co. is growing quickly. Dividends are expected to grow at a rate of 22 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 12 percent and the company just paid a dividend of $2.35, what is the current share price?
