The Herjavec Co. just paid a dividend of $1.85 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's stock. What is the current price? What will be the price in three years?

Current price : $24.05

Price in 3 years : $27.05

Explanation:

The Current stock price of Herjavec Co will be determined by the formula given below;

Po = [Do (1 + g) ] / (r - g)

Po = Current price

Do = Current dividend

r = Rate of return

g = growth of dividend

Po = ($1.85 * 1.04) / (0.12 - 0.04)

Po = $1.924 / 0.08

Po = $24.05.

The stock price of Herjavec Co after 3 years will be determined by the formula given below;

P3 = Do (1 + g) ^4 / (r - g)

P3 = [$1.85 * (1.04) ^4] / (0.12 - 0.04)

P3 = $27.05