XanEx is a new firm that just paid an annual dividend of $1 a share.The firm plans to increase its dividend by 20 percent a year for the next four years and then decrease the growth rate to 5 percent annually.If the required rate of return is 10.25 percent,what is one share of this stock worth today?

Question

Quizplus · Accepted Answer

P₄ = ($1 × 1.2⁴ × 1.05)/(.1025 - .05)= $41.47P₀ = ($1 × 1.2)/1.1025 + ($1 × 1.2²)/1.1025²] + ($1 × 1.2³)/1.1025³ + [($1 × 1.2⁴)+ $41.47]/1.1025⁴P₀ = $33.04

XanEx Is a New Firm That Just Paid an Annual