Nonconstant Growth Valuation

A company currently pays a dividend of $3.75 per share, It is estimated that the company's dividend will grow at a rate of 20% percent per year for the next 2 years, then the dividend will grow at a constant rate of 7% thereafter. The company's stock has a beta equal to 1.75, the risk-free rate is 4.5 percent, and the market risk premium is 5 percent. What would you estimate is the stock's current price?

You accidentally omitted part of your post--the part where you show your attempts and thoughts on answering the question. Go back and re-read the forum's homework help rules, then check back in for guidance.

In the meantime, here's the basic framework: You can determine a PV for the dividend stream which begins three years from today, using the constant-growth model. Of course, that'll give you the PV of that stream as of two years from today, so you'll then need to PV that number back two years, giving you today's value.

Then separately determine the PVs of next year's expected dividend, and the one two years from today.

Add 'em up.