Calculate the arithmetic average annual growth rate of the dividend for each company. If you expect the dividend to grow indefinitely at that rate in the future, what is the price you would be willing to buy these companies' stocks immediately after the 2021 dividend?

 

2) Calculate the geometric average annual growth rate of the dividend for each company. If you expect the dividend to grow indefinitely at that rate in the future, what is the price you would be willing to buy these companies' stocks immediately after the 2021 dividend?

 

3) If dividends are expected to grow at 25% in 2022, 10% in 2023, 6% in 2024, then at 3% per year forever, what is the price you would be willing to pay for each company immediately after the 2021 dividend? Use the 3-period abnormal growth formula: P₀ = D₁/(1+r) + D₂/(1+r)^2 + D₃/(1+r)^3 + P₃/(1+r)^3

 

Dividend Year	Company 1	Company 2	Company 3
2017	$1.00	$0.70	$0.70
2018	$1.20	$0.73	$0.80
2019	$0.90	$0.76	$0.85
2020	$1.10	$0.79	$0.74
2021	$1.20	$0.82	$0.70
Required Return	10%	12%	14%
Arithmetic average
Price (right after 2021 div.)
Geometric average
Price (right after 2021 div.)
2022 div. growth rate	25.00%	25.00%	25.00%
2023 div. growth rate	10.00%	10.00%	10.00%
2024 div. growth rate	6.00%	6.00%	6.00%
constant growth rate (starting end of 2024)	3.00%	3.00%	3.00%
2022 Dividend
2023 Dividend
2024 Dividend
2024 Expected Price
Price (right after 2021 div.)