Question #112
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 44
Status: Unattempted
Question
Deployment Specialists pays a current (annual) dividend of $1.00 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 8.5%, the current value of Deployment Specialists is closest to:
Answer Choices:
A. $30.60
B. $25.39
C. $33.28
Explanation
First estimate the amount of each of the next two dividends and the terminal value. The
current value is the sum of the present value of these cash flows, discounted at 8.5%.