Gamma Corp.is expected to pay the following dividends over the next four years: $5,$12,$18,and $1.80.Afterward,the company pledges to maintain a constant 4 percent growth rate in dividends,forever.If the required return on the stock is 14 percent,what is the current share price?

Question

Quizplus · Accepted Answer

P₄ = ($1.80 × 1.04)/(0.14 - 0.04) = $18.72; P₀ = ($5/1.14) + ($12/1.14²) + ($18/1.14³) + [($1.80 + $18.72)/1.1 4⁴] = $37.92