Dexter Metals,paid its first annual dividend yesterday in the amount of $0.18 a share.The company plans to double each annual dividend payment for the next 3 years.After that time,it plans to pay $1.25 a share for 2 years than then pay a constant dividend of $1.60 per share indefinitely.What is one share of this stock worth today if the market rate of return on similar securities is 10.24 percent?
A)$12.32
B)$12.77
C)$13.20
D)$14.26
E)$14.79

Question

Quizplus · Accepted Answer

The stock price today is the present value of all future dividends. Calculate the dividends for the first 3 years, then the dividends for years 4 and 5, and finally the perpetuity starting from year 6. Discount each of these cash flows back to the present value using the market rate of return of 10.24%.

Dexter Metals,paid Its First Annual Dividend Yesterday in the Amount