Greentop Inc. plans on increasing its annual dividend by 15 percent a year for the next...

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Finance

Greentop Inc. plans on increasing its annual dividend by 15percent a year for the next four years and then decreasing thegrowth rate to 2.5 percent per year. The company just paid itsannual dividend in the amount of $.20 per share. The required rateof return is 17.4 percent.
(a) What is the current value of one share of this stock?
(b) What is the expected stock price of this stock for nextyear?
(c) What is the expected stock price of this stock in 10years?
I need explanation. thanks!

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4.0 Ratings (573 Votes)

a The fair price of a stock is the PV of the expected dividends when discounted at the required rate of return The dividends for the first four years have a growth rate of 15 and the growth rate is constant from See Answer

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Greentop Inc. plans on increasing its annual dividend by 15percent a year for the next four years and then decreasing thegrowth rate to 2.5 percent per year. The company just paid itsannual dividend in the amount of $.20 per share. The required rateof return is 17.4 percent.(a) What is the current value of one share of this stock?(b) What is the expected stock price of this stock for nextyear?(c) What is the expected stock price of this stock in 10years?I need explanation. thanks!