Upper Gullies Corp. just paid a dividend of $2.20 per share. The dividends are expected to grow at 25% for the next eight years and then level off to a 6% growth rate indefinitely. If the required return is 14%, what is the price of the stock today? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

To calculate the price of the stock today, we need to calculate the present value of the dividends for the next eight years and the present value of the dividends from the ninth year onwards (which grow indefinitely at a rate of 6%).

Step 1: Calculate the dividends for the next eight years. The dividends are expected to grow at a rate of 25% for the next eight years. So, we calculate the dividends for each of these years:

Year 1: $2.20 * 1.25 =$2.75 Year 2: $2.75 * 1.25 =$3.44 Year 3: $3.44 * 1.25 =$4.30 Year 4: $4.30 * 1.25 =$5.38 Year 5: $5.38 * 1.25 =$6.72 Year 6: $6.72 * 1.25 =$8.41 Year 7: $8.41 * 1.25 =$10.51 Year 8: $10.51 * 1.25 =$13.14

Step 2: Calculate the present value of these dividends. We discount these dividends back to the present using the required return of 14%:

PV1 = $2.75 / (1 + 0.14)^1 =$2.41 PV2 = $3.44 / (1 + 0.14)^2 =$2.64 PV3 = $4.30 / (1 + 0.14)^3 =$2.89 PV4 = $5.38 / (1 + 0.14)^4 =$3.16 PV5 = $6.72 / (1 + 0.14)^5 =$3.47 PV6 = $8.41 / (1 + 0.14)^6 =$3.82 PV7 = $10.51 / (1 + 0.14)^7 =$4.22 PV8 = $13.14 / (1 + 0.14)^8 =$4.67

The total present value of the dividends for the first eight years is the sum of these present values: $2.41 +$2.64 + $2.89 +$3.16 + $3.47 +$3.82 + $4.22 +$4.67 = $27.28

Step 3: Calculate the dividends from the ninth year onwards. From the ninth year onwards, the dividends grow indefinitely at a rate of 6%. The dividend in the ninth year is the dividend in the eighth year grown by 6%: $13.14 * 1.06 =$13.93

Step 4: Calculate the present value of these dividends. The present value of these dividends is calculated using the Gordon growth model, which is D / (r - g), where D is the dividend, r is the required return, and g is the growth rate. So, the present value is $13.93 / (0.14 - 0.06) =$139.30. However, this is the value in the ninth year, so we need to discount it back to the present: $139.30 / (1 + 0.14)^8 =$62.72

Step 5: Add the present values. The price of the stock today is the sum of the present values of the dividends for the first eight years and the present values of the dividends from the ninth year onwards: $27.28 +$62.72 = $90.00

So, the price of the stock today is $90.00.