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4. A company is expanding rapidly and it currently needs to retain all of it earnings, hence it does not pay any dividends. However, investors
4. A company is expanding rapidly and it currently needs to retain all of it earnings, hence it does not pay any dividends. However, investors expect the company to begin paying dividends, with the first dividend of Rs.1 coming 1 year from today (i.e. D1=Rs.1). The dividend should grow rapidly at a rate of 50% per year during years 2, 3 and 4. After year 4, the company should grow at a constant rate of 8% per year. If the required return on the stock is 15%, what is the value of the stock today? (3 marks)
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