You are the newly hired VP of Corporate Finance for MMR Capital Markets Ltd. As a part of your job, you are reviewing the valuations of some companies that your company follows.  You are given the following information about Sterling Company Limited's common stock: 

D0 = $1.60. Dividends are expected to grow by 12.5% for the first 3 years of the company's life. It is anticipated that after year 3, the company will grow at a constant rate of 4%.  MMR Capital Markets Ltd has determined that the required rate of return is 9%. 

1. What is the value of Sterling's Common Stock?
2. You compare Sterling Company to Royal Company Ltd. Royal also has a required rate of 9%, they paid a dividend of $2.75 last week. The dividend should grow constantly by 2% per annum. What is the value of Royal Company Ltd?

Answer rating: 100% (QA)

To calculate the value of Sterling Company Limiteds common stock we can use the Dividend Discount Mo... View the full answer