Phillips, Inc. just paid a dividend of $3.25 per share on its common stock (that is, D0 = 3.25). Investors expect the dividend to grow at 45% in years 1 and 2, they expect the dividend to grow at 25% in year 3 and they expect that all future dividends (that is, dividends in years 4, 5, …, infinity) to grow at a constant rate of 5% per year. If the cost of capital for Phillips, Inc. stock is 16%, what is the current price of the stock?

Answer rating: 100% (QA)

Given D0 current dividend 325 Dividend growth rate Years 1 and 2 45 g1 g2 045 Year ... View the full answer