Fin. Mgmt: Calculating Current Common Stock Price?
Motor Homes Inc. (MHI) is presently in a stage of abnormally high growth because of a surge in the demand for motor homes. The company expects earnings and dividends to grow at a rate of 20% for the next 4 years, after which time there will be no growth (g=0) in earnings and dividends. The company's last dividend was $1.50. MHI's bets is 1.6, the return on the market is currently 12.75%, and the risk-free rate is 4%. What should be the current common stock price?