8-11: Valuing Common Stocks with the Dividend Growth Model

Problem 8-12 Nonconstant Growth Stock Valuation

Assume that the average firm in your company's industry is expected to grow at a constant rate of 4% and that its dividend yield is 6%. Your company is about as risky as the average firm in the industry and just paid a dividend (D0) of $1.75. You expect that the growth rate of dividends will be 50% during the first year(g0,1 = 50%) and 30% during the second year (g1,2 = 30%). After Year 2, dividend growth will be constant at 4%. What is the required rate of return on your company's stock? Round your answer to two decimal places.

%

What is the estimated value per share of your firm's stock? Round your answer to the nearest cent. Do not round your intermediate computations.

$