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Your are interested in buying some stock in a company that is expected to pay a...

Your are interested in buying some stock in a company that is expected to pay a dividend annually of $3.00 per share next year, $3,30 for the following year and $2.50 per share for the third year. Thereafter, dividends are expected to grow 5% annually. Assume the first dividend will be payed one year from today. You want a return of 14% per year. Would you buy this stock if it was selling for $30.00 per share today? Why? Show work in excel.

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Answer #1
Price at the end of Year-3 = Dividend of Year-4 / (Rate f return- Growth rate)
(2.50*1.05) / (14%-5%) = $ 29.17 per share
Year Cashflows PVF at 14% Present value
1 Dividend 3 0.877193 2.631579
2 Dividend 3.3 0.7694675 2.539243
3 Dividend 2.5 0.6749715 1.687429
3 Price 29.17 0.5920803 17.27098
Price computed 24.13
As the price computed is lower than market price prevail, we will not purchase the share
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