Davidson, Inc. is experiencing a period of rapid growth. Davidson will pay a dividend of $1.25 a
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Question:
Davidson, Inc. is experiencing a period of rapid growth. Davidson will pay a dividend of $1.25 a share in one year from today. Dividends are expected to grow at 25% in the second year and at 20% in the third year. However, as a result of competition, dividends are expected to grow at a constant rate of 5% (per year) thereafter. The equity cost of capital is 15%. (12 points)
a) What are the dividends over the next four years? b) Compute the value (today) of a share of the stock.
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