EOC Problems $11-17$

Question $10$ of $15$

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Problem $11-17-$ Dividend Discount Model

Suppose that a company will pay a $$0\mathrm{.}85$ per$-$share$-$per$-$year dividend next year. It is expected to increase that dividend by $$0\mathrm{.}05$ each year for three years $($to year four$).$ In year four, the PE ratio of the firm is expected to be $19.$ Earnings were $$2$ per share last year and are expected to grow at $8\%$ each year to year four. Suppose that the required rate of return is $9\%.$

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