Question
A corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect it to
A corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect it to begin paying dividends, beginning with a dividend of $0.50 coming 3 years from today (this will be in year 3). The dividend should grow rapidly at a rate of 40% per year during years 4 and 5. After year 5, growth should be constant at 6% per year. If the required return is 12%, what is the value of the stock today? Do not round intermediate calculations; round final answer to 2 decimals and include dollar sign. (Hint: you will need to calculate dividend payments through year 6).
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