Question

AlfonsoLtd will not pay dividends until year 3, whereby it is expected to pay $5 in dividends. Dividends are then expected to grow at 20%, 10% and 5% in years 4, 5 and 6. Afterwards, dividend growth will stabilize to 2% consistently. If the rate of return is 10%, determine the stock price in year 3.

Answer #1

Alfonso Ltd will not pay dividends until year 3, whereby it is
expected to pay $5 in dividends. Dividends are then expected to
grow at 20%, 10% and 5% in years 4, 5 and 6. Afterwards, dividend
growth will stabilize to 2% consistently. If the rate of return is
10%, determine the stock price in year 3. (With all the FORMULAS
AND STEPS)

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