A company just paid a dividend to its common shareholders of $6.60per share, so DIV 0 =
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Question:
A company just paid a dividend to its common shareholders of
$6.60per share, so DIV0= $6.60.A newly introduced product line is expected to increase
dividends by50% per year for the next two (2) years, but then dividends are expected to fall to
a long-runnormal growth rate of 8% per year from Year 2 onward.This means that dividend
growth willbe constant at 8% forever after Year 2 (or g = 0.08afterYear 2).The required
return on thiscompany's common stock is 18% (therefore, r = 0.18).
What is the expected dividend at the end of Year 1 (DIV1)?
What is the expected dividend at the end of Year 2 (DIV2)?
Finally, what is your best estimate of the stock's current market price
today(P0)?
Expert Answer:
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