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Staton-Smith Software is a new​ start-up company and will not pay dividends for the first five...

Staton-Smith Software is a new​ start-up company and will not pay dividends for the first five years of operation. It will then institute an annual cash dividend policy of ​$4.50 with a constant growth rate of 6​%, with the first dividend at the end of year six. The company will be in business for 25 years total. What is the​ stock's price if an investor wants

a.  a return of 11​%?

b.  a return of 15​%?

c.  a return of 24​%?

d.  a return of 38​%?

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Answer #1
Rate Stock price
a 11% $32.16
b 15% $19.99
c 24% $8.16
d 38% $2.80

Workings

Dividends are as follows

Year Dividend
1 0.00
2 0.00
3 0.00
4 0.00
5 0.00
6 4.50
7 4.77
8 5.06
9 5.36
10 5.68
11 6.02
12 6.38
13 6.77
14 7.17
15 7.60
16 8.06
17 8.54
18 9.05
19 9.60
20 10.17
21 10.78
22 11.43
23 12.12
24 12.84
25 13.62

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