Question
Consider a stock that pays quarterly (every 3 months) dividends. The next dividend is expected to be paid in 3 months and is expected to
Consider a stock that pays quarterly (every 3 months) dividends. The next dividend is expected to be paid in 3 months and is expected to be $1.5 per share. The quarterly dividend is expected to be constant for the next four years. After 4 years, the quarterly dividend is expected to be constant at $2.0 per share for the next three years (years 5, 6 and 7) after that the quarterly dividend is expected to grow at 1.5% for ever. The effective quarterly cost-of-capital is 4.5%. The effective semi-annual cost-of-capital is 7.125% and the effective annual cost-of-capital is 31.68%. Find the fair value of the stock today.
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