Question
ABC Corporation is expanding rapidly, and it currently needs to retain all of its earnings; hence it does not pay any dividends. However, investors expect
ABC Corporation is expanding rapidly, and it currently needs to retain all of its earnings; hence it does not pay any dividends. However, investors expect ABC to begin paying dividends, with the first dividend of $1 coming 3 years from today. The dividend should grow rapidly - at a rate of 50% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 8% per year. If the required rate of return on the stock is 15 percent, what is the value of the stock today? How would you solve this problem? Can you show me how you get the solution into a step by step with formula.
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