Midtown Enterprises paid its first annual dividend yesterday in the amount of $.26 a share.The company plans to double each annual dividend payment for the next 3 years.After that,it will pay a constant $2.40 per share dividend indefinitely.What is one share of this stock worth today if the market rate of return on similar securities is 14.5 percent?

Question

Quizplus · Accepted Answer

P₃ = $2.40 / 0.145 = $16.55 P₀ = $.52 / 1.145 + $1.04 / 1.145² + ($2.08 + 16.55)/ 1.145³ P₀ = $13.66

Midtown Enterprises Paid Its First Annual Dividend Yesterday in the Amount