Question

Non-constant dividend growth: Cooling Company paid $3.00 per share in common stock dividends last year. The company's policy is to allow its dividend to grow at 10 percent for 3 years and then the rate of growth changes to 4 percent per year from year four and on. What is the value of the stock if the required rate of return is 9 percent?

Answer 1

What is the value of the stock if the required rate of return is 9 percent

=(3.00*(1+10%)^1)/(1+9%)^1+(3.00*(1+10%)^2)/(1+9%)^2+(3.00*(1+10%)^3)/(1+9%)^3+((3.00*(1+10%)^3*(1+4%))/(9%-4%))/(1+9%)^3

=73.30

the above is answer..