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What is the value of a stock that has a $1 dividend in Year 1, grows...

What is the value of a stock that has a $1 dividend in Year 1, grows for two more years at 20%, and then grows forever at -2%? The cost of equity capital is 10%.

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Answer #1
10.0000%
Cash flows Year Discounted CF
                           -   0 0.00
                      1.00 1 0.91
                      1.20 2 0.99
                      1.44 3 1.08
                    11.76 3 8.84

Discounted cash flows = cash flow/(1+ rate)^n

terminal value = 1.44*0.98/0.12

value of stock = 11.82

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