The current share price of Synovec Corporation is $126.95.
The Breakdown
We need to determine the present value of the expected future dividends and the perpetuity of dividends.
Given:
Dividends: $5.20, $16.20, $21.20, and $3.00
Growth rate: 5.5%
Required return: 9%
Step 1: Calculate the present value of the expected future dividends.
PV = D1 / (1 + r) + D2 / (1 + r)² + D3 / (1 + r)³ + D4 / (1 + r)⁴
Where:
PV = Present value
D1, D2, D3, D4 = Expected dividends for each year
r = Required return
PV = $5.20 / (1 + 0.09) + $16.20 / (1 + 0.09)² + $21.20 / (1 + 0.09)³ + $3.00 / (1 + 0.09)⁴
PV = $4.77 + $13.47 + $16.24 + $2.18
PV = $36.66
Step 2: Calculate the perpetuity of dividends.
Perpetuity = D5 / (r - g)
Where:
D5 = Dividend in year 5
g = Growth rate
D5 = $3.00 × (1 + 0.055) = $3.16
Perpetuity = $3.16 / (0.09 - 0.055)
Perpetuity = $3.16 / 0.035
Perpetuity = $90.29
Step 3: Calculate the current share price.
Current share price = PV + Perpetuity
Current share price = $36.66 + $90.29
Current share price = $126.95
Therefore, the current share price of Synovec Corporation is $126.95.