You want to determine the value of a share of stock in a start-up company. Initially, the owner of a share today (year 0) will be expected to have to pay into the firm $3 per share at the end of year 1 and $1 per share at the end of year 2. Then the share will then receive no cash payments for the next 3 years (years 3, 4, and 5). In year 6, the firm is expected to payout a dividend of $1 per share. This dividend is expected to grow at a rate of 25% per year for the next fourteen years (years 7- 20). After this (year 21 onward) the growth rate of dividends is expected to drop to 4% per year in perpetuity (forever). The required rate of return for the equity cash flows of this firm is 12%. 

Determine the price for the share of stock today as the present value of these future expected cash flows.

Answer rating: 100% (QA)

To determine the price of the share of stock today we need to calculate the present value of all the ... View the full answer