Micro Inc. (MI) just paid a dividend of $2.00/share. MI has a new technology that is...

 

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Micro Inc. (MI) just paid a dividend of $2.00/share. MI has a new technology that is expected to go on the market this year, and their dividend is expected to grow at 10% per year for the next five years (i.e., the growth rate applies only to the next five dividend payments). After that, the dividend is not expected to increase for the foreseeable future (i.e., forever). The next dividend will be paid exactly in one year. Assume investors require a 10% rate of return (EAR) for MI's stock. a) What is MI's stock price today? b) What is MI's stock price in three years from now (right after the dividend payment)? c) What is MI's stock price in twenty years from now (right after the dividend payment)? Micro Inc. (MI) just paid a dividend of $2.00/share. MI has a new technology that is expected to go on the market this year, and their dividend is expected to grow at 10% per year for the next five years (i.e., the growth rate applies only to the next five dividend payments). After that, the dividend is not expected to increase for the foreseeable future (i.e., forever). The next dividend will be paid exactly in one year. Assume investors require a 10% rate of return (EAR) for MI's stock. a) What is MI's stock price today? b) What is MI's stock price in three years from now (right after the dividend payment)? c) What is MI's stock price in twenty years from now (right after the dividend payment)?

Answer rating: 100% (QA)

To calculate the stock price of Micro Inc MI using the dividend growth model we can use the formula for the present value of a growing perpetuity a Stock price today The current dividend is 200 per sh... View the full answer