Consider the following three stocks.

Stock Alpha is expected to pay a dividend of $$1\mathrm{.}50$ per share forever $$ no growth or decline.

Stock Beta will pay a dividend of $$3\mathrm{.}25$ next year. Dividends are expected to grow at $2\mathrm{.}5\%$ per year forever.

Stock Delta is recovering from several years of poor financial results, during which its dividend was cut to $$0\mathrm{.}25$ per year. After a significant restructuring, the company is expected to increase dividends by $$\mathrm{.}25$ per year for four years $($DIV$1=$ $$0\mathrm{.}50,$ DIV$2=$ $$0\mathrm{.}75,$ DIV$3=$ $$1\mathrm{.}00,$ DIV$4=$ $$1\mathrm{.}25).$ Thereafter dividends are not expected to grow or decline.

What is the value of each stock, assuming the cost of capital is $12\%?$

Alpha:

Div $=$

r $=$

Po $=$

Beta:

Div $1=3\mathrm{.}25$

r $=12\%$

g $=2\mathrm{.}50\%$

Po $=$

Dela:

r $=12\%$

year $1$ dividend $=0\mathrm{.}50$

year $2$ dividend $=0\mathrm{.}75$

year $3$ dividend $=1\mathrm{.}00$

year $4$ dividend $=1\mathrm{.}25$

terminal value $=$

PV of dividend:

year $1=$

year $2=$

year $3=($include terminal value in this year$)$

Po $=($sum of PV$)$