Common Stock Valuation

Perry Motors' common stock has just paid an annual dividend of $1.80 per share. The required yield on common stock is 12%. Calculate the value of the common stock considering each of the following assumptions about the dividend:

a. Dividends are expected to grow at a 0% annual rate indefinitely.

b. Dividends are expected to grow at a constant annual rate of 5% indefinitely.

c. Dividends are expected to grow at a 5% annual rate for each of the next three years, and then a constant annual growth rate of 4% from the fourth year onwards.