MusicTogether.com will pay out its first dividend, $2.00, one year from today. Analysts expect annual dividends to grow at a rate of 15% per year for each of the following two years (year 2 through year 3) after which a normal growth of 6% is expected indefinitely. Investors require a 12% return from holding the stock of MusicTogether.com.

1. What should be the current stock price of MusicTogether.com?

1. If MusicTogether delays paying dividends for a year, i.e. the first dividend will be paid out in two years from today. Accordingly, all later dividends are paid out one year later than originally projected. The pattern of growth rates stays the same, i.e., 15% for two years and 6% thereafter. What is the stock price today?

Answer rating: 100% (QA)

To calculate the current stock price of MusicTogethercom we can use the dividend discount model DDM and discount the future dividends to present value ... View the full answer