Management has recently announced that expected dividends for the next three years will be as follows: YEAR 1 DIVIDEND 1

Finance Nov 27, 2020

Management has recently announced that expected dividends for the next three years will be as follows: YEAR 1 DIVIDEND 1.5 2. 2 2.5 3 After year 3, dividends are expected to grow at the rate of 3.2% per year. An appropriate required return for the stock is 10%. What should be the stock worth today? O a. 32.52 O b. 30.81 O. c. 33.40 O d. 34.51

Expert Solution

Terminal value = 2.5(1.032)/(0.10 - 0.032)

Terminal value = $37.94

Stock price = 1.50/(1.10) + 2/(1.10)² + (2.50 + 37.94)/(1.10)³

Stock Price = $33.40

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