Simtek currently pays a $2.50 dividend (D0) per share. Next

Simtek currently pays a $2.50 dividend (D0) per share. Next year’s dividend is expected to be $3 per share. After next year, dividends are expected to increase at a 9 percent annual rate for three years and a 6 percent annual rate thereafter. 

1. What is the current value of a share of Simtek stock to an investor who requires a 15 percent return on his or her investment?

2. If the dividend in year 1 is expected to be $3 and the growth rate over the following three years is expected to be only 7 percent and then 6 percent thereafter, what will the new stock price be? Calculate.


Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...