A stock just paid a dividend of $1.05. The dividend is expected to grow at 23.56% for three years and then grow at 3.43% thereafter. The required return on the stock is 10.68%. What is the value of the stock? Answer Format: Currency: Round to: 2 decimal places.
D1=(1.05*1.2356)=1.29738
D2=(1.29738*1.2356)=1.603042728
D3=(1.603042728*1.2356)=1.980719595
Value after year 3=(D3*Growth Rate)/(Required return-Growth Rate)
=(1.980719595*1.0343)/(0.1068-0.0343)
=$28.25735555
Hence current value=Future dividends*Present value of discounting factor(rate%,time period)
=1.29738/1.1068+1.603042728/1.1068^2+1.980719595/1.1068^3+$28.25735555/1.1068^3
=$24.78(Approx).
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