Computing the current price of the common stock


Rentz RVs Inc. (RRV) has projected zero growth for the next two years. After that, they project that the firm growth will be back to the long run average growth rate of 5% forever. That means that management expects earnings and dividends to grow at a rate of 0% for the next 2 years, after which the growth rate in earnings and dividends will return to a constant 5%. The company's last dividend, D0, was $1.25. RRV's beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?

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Finance Basics: Computing the current price of the common stock
Reference No:- TGS054302

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