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You are planning to buy a stock that has just paid a dividend (D0) of...

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Finance

You are planning to buy a stock that has just paid a dividend (D0) of $2.50. In addition, you anticipate the following dividend growth rates:

  • Year 1 = 100%
  • Year 2 = 0%
  • Year 3 = -30% (note this is NEGATIVE 30%)
  • Year 4 = 20%
  • Years 5 through infinity = 4%

Assume a discount rate of 10%. Based on this, what is the value of the stock today? (Hint1: use the three-step process of non-constant growth DDM; hint 2: show steps to earn partial credits).

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