JCPenney Company is expected to pay a dividend in year 1 of $1.65, a dividend in year 2 of $1.97, and a dividend in year 3 of $2.54.After year 3, dividends are expected to grow at the rate of 8% per year.An appropriate required return for the stock is 11%.The stock should be worth _______ today.

Question

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The stock price today can be calculated using the dividend discount model (DDM). Calculate the present value of dividends for the first three years and the present value of the perpetuity starting from year 4. The formula for the perpetuity is D3*(1+g)/(r-g), where D3 is the dividend in year 3, g is the growth rate, and r is the required return. Then, discount all these values back to the present value using the required return.

JCPenney Company Is Expected to Pay a Dividend in Year