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Green Tree Corporation is paying a dividend of $4 today. It expects dividends to grow at...

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Finance

Green Tree Corporation is paying a dividend of $4 today. Itexpects dividends to grow at 25 percent for the next three yearsand to stabilize at 10 percent per year thereafter. If the requiredrate of return of this corporation is 15 percent, what is thecurrent price of this corporation's stock? What percentage of thecurrent stock price is due to the dividends in the first threeyears? What percentage of the current stock price is due to thedividends from Year 4 onwards?

Answer & Explanation Solved by verified expert
4.3 Ratings (833 Votes)
Answer Last Dividend D0 400 Growth Rate for next 3 years is 25 and a constant growth rate g of 10 thereafter D1 40000 125 50000 D2 50000 125 62500 D3 62500 125 78125 D4 78125 110 85938 Required Return rs 15 P3    See Answer
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Green Tree Corporation is paying a dividend of $4 today. Itexpects dividends to grow at 25 percent for the next three yearsand to stabilize at 10 percent per year thereafter. If the requiredrate of return of this corporation is 15 percent, what is thecurrent price of this corporation's stock? What percentage of thecurrent stock price is due to the dividends in the first threeyears? What percentage of the current stock price is due to thedividends from Year 4 onwards?

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