Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20%. Thus, the dividend payments will be
Year Dividend
1 $1.20
2 $1.44
3 $1.73
4 $2.07
After this initial period of super growth, the rate of increase in the dividend should decline to 8%. If you want to earn 12% on investments in common stock, what is the maximum you should pay for this stock? Hint: Use non-constant growth formula to calculate price.
Get Answers For Free
Most questions answered within 1 hours.