Felix Pet Foods plans to pay an annual dividend of $.75 next year,increase the dividend by 12 percent for the following three years,and then increase the dividend by 2 percent annually thereafter.The required rate of return is 12.5 percent.What is this stock worth per share today?

Question

Quizplus · Accepted Answer

P₄ = ($.75 × 1.12³ × 1.02)/(.125 - .02)= $10.24P₀ = $.75/1.125 + ($.75 × 1.12)/1.125² + ($.75 × 1.12²⁾/1.125³ + [($.75 × 1.12³)+ $10.24]/1.125⁴P₀ = $9.04

Felix Pet Foods Plans to Pay an Annual Dividend of $.75