Determine the price of tractor common stock

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Reference no: EM132070242

Suppose that Tractor Supply Company’s stock (TSCO) is selling for $67.00. Analysts believe that the growth rate for Tractor will be 15% next year, 20% for the following two years, and thereafter the growth rate will be 8% indefinitely. Due to its growth, Tractor will not pay a cash dividend until two years from now. At that time, the dividend per share will be $2.00. Thereafter the dividend will grow by the same rate as the company. Stockholders require a return of 18 percent on Tractor’s stock.

Required:

a) Based on the above assumptions, determine the price of Tractor’s common stock.

b) Explain whether an investor should buy the stock.

Reference no: EM132070242

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