Question

Assume Deloitte will pay an annual dividend of $0.65 one year from now, AnalystS expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. Required rate of return is 8% 1) What price would you expect to be able to sell a share of Deloitte stock in 3 years, just after dividend 3 is paid? 2) What is the value of Deloitte stock today if you hold it for 3 years and plan to sell immediately after it makes its third dividend payment?

Answer 1