The required return on an investment is 12 percent. You estimate that firm Xs dividends will grow

Question:

The required return on an investment is 12 percent. You estimate that firm X’s dividends will grow as follows:

Year Dividend

1 ........ $1.20

2 ........ 2.00

3 ........ 3.00

4 ........ 4.50

For the subsequent years you expect the dividend to grow but at the more modest rate of 7 percent annually. What is the maximum price that you should pay for this stock?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...