General Importers announced today that its next annual dividend will be $2.60 per share.After that dividend is paid,the company expects to encounter some financial difficulties and is going to suspend dividends for five years.Following the suspension period,the company expects to pay a constant annual dividend of $1.30 per share.What is the current value of this stock if the required return is 18 percent?

Question

Quizplus · Accepted Answer

P₆ = $1.30/0.18 = $7.22; P₀ = ($2.60/1.18¹) + ($7.22/1.18⁶) = $4.88

General Importers Announced Today That Its Next Annual Dividend Will