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3. A company just paid an annual dividend of $3.00 per share on its common stock. Due to the success of a new product,
3. A company just paid an annual dividend of $3.00 per share on its common stock. Due to the success of a new product, the firm expects to achieve a dramatic increase in its short-term growth rate in sales to 20 percent annually for the next three years. After this time, the growth rate in sales is expected to return to the long-term constant rate of 5 percent per year. Assume that the company's dividend growth rate matches the rate of growth in sales of 5 percent a year forever after year 3. If the required return on the stock is 15 percent per year, what is the current stock price? Assume that dividends are paid annually.
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