Question: Firm announced that dividends will stop for the next 3 years. It announces that dividend will be paid at the end of Year 4 at

Firm announced that dividends will stop for the next 3 years. It announces that dividend will be paid at the end of Year 4 at $2 per share, with the dividend growing at a constant rate of 1% each year perpetually.

With that announcement, the firm's shares traded at $5 per share. Analysts estimate the firm's cost of equity to be 15%.

Required:

Compute the value today of the firm's share based on the dividend discount model.

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