Nu-Tek,Inc.is expecting a period of intense growth,so it has decided to retain more of its earnings to help finance that growth.As a result,it is going to reduce its annual dividend by 20 percent a year for the next three years.After that it will maintain a constant dividend of $1.60 a share.Last year,the annual dividend was $2.60 a share.What is the market value of this stock if the required rate of return is 13 percent?

Question

Quizplus · Accepted Answer

P₃ = $1.60/.13 = $12.31P₀ = ($2.60 × .80)/1.13 + ($2.60 × .80²)/1.13² + [($2.60 × .80³)+ $12.31]/1.13³ = $12.60