The Three Amigos Restaurant just paid an annual dividend of $4.20 per share and is expected to pay annual dividends of $4.40 and $4.50 per share the next two years,respectively.After that,the firm expects to maintain a constant dividend growth rate of 2 percent per year.What is the value of this stock today if the required return is 15 percent?

Question

Quizplus · Accepted Answer

P₂ = ($4.50 × 1.02)/(0.15 - 0.02) = $35.31; P₀ = [$4.40/1.15] + [($4.50 + $35.31)/1.15² = $33.93

The Three Amigos Restaurant Just Paid an Annual Dividend of $4.20