Company A has just paid a dividend (D0) of $1.50. The following are forecasted growth rates:

Year 1 100%

Year 2 50%

Year 3 25%

Year 4 10%

Year 5 5%

Year 6 and on -2% (Note: The constant growth rate here is negative 2%, not 2%.) The firms cost of equity is 11% (i.e. investors require a 10% return on this stock).

1. Calculate the expected dividends for years 1 through 5. (Round all dividends to the nearest cent.)

Calculate the expected stock price at the end of year 5, P₅ (round to the nearest cent.)

(Note: P₅ represents the value of all dividends in years 6 through infinity as of five years from today. The constant growth rate starts at the end of Year 5. That is why the expected price we are solving for is P₅. You need to calculate D₆ first before using the Constant Growth Model. Again, note that the constant growth rate is -2%, not 2%.)