XanEx is a new firm that just paid an annual dividend of $1 a share.The firm plans to increase its dividend by 10 percent a year for the next 4 years and then decrease the growth rate to 2 percent annually.If the required rate of return is 18.25 percent,what is one share of this stock worth today?

Question

Quizplus · Accepted Answer

P₄ = ($1 × 1.1⁴ × 1.02)/ (0.1825 − 0.02)= $9.19 P₀ = ($1 × 1.1)/ 1.1825 + ($1 × 1.1²)/ 1.1825² + ($1 × 1.1³)/ 1.1825³ + [($1 × 1.1⁴)+ $9.19] / 1.1825⁴ P₀ = $8.05

XanEx Is a New Firm That Just Paid an Annual