Smith Construction,Inc.is expected to pay a $2.78 dividend next year.The dividend is expected to grow by 4% each year for the next three years.After that the company will never pay another dividend ever again.If your required return on the stock investment is 10%,what should the stock sell for today?

Question

Quizplus · Accepted Answer

D1 = 2.78
D2 = 2.78(1.04)= 2.89
D3 = 2.89(1.04)= 3.01
D4 = 3.01(1.04)= 3.13
P = 2.78/1.1 + 2.89/1.1^2 + 3.01/1.1^3 + 3.13/1.1^4 = 9.31