Nu-Tek,Inc.is expecting a period of intense growth,so it has decided to reduce its annual dividend by 10 percent a year for the next 3 years.After that,it will maintain a constant dividend of $1.90 a share.Last year,the annual dividend was $2.70 a share.What is the market value of this stock if the required rate of return is 15 percent?

Question

Quizplus · Accepted Answer

P₃ = $1.90 / 0.15 = $12.67 P₀ = ($2.70 × 0.90)/ 1.15 + ($2.70 × 0.90²)/ 1.15² + [($2.70 × 0.90³)+ $12.67] / 1.15³ = $13.39