The Market Place recently announced that it will pay its first annual dividend two years from today. The first dividend will be $0.50 a share with that amount doubling each year for the following two years. After that, the dividend is expected to increase by 4 percent annually. What is the value of this stock today if the required return is 15 percent?

Question

Quizplus · Accepted Answer

The stock value today is calculated by finding the present value of the expected dividends. The dividends are $0.50 in year 2, $1.00 in year 3, and $2.00 in year 4. From year 5 onwards, the dividend grows at 4% annually. The present value of these dividends, discounted at the required return of 15%, gives the stock value today as $12.99.

The Market Place Recently Announced That It Will Pay Its