Corporate Finance Exercise:

Consider 3 stocks:

1.Stock A is expected to provide a dividend of $10 forever.

2.Stock B is expected to pay a dividend of $5 next year, and its dividend growth is expected to be 4% a year thereafter.

3.Stock C is expected to pay a dividend of $5 next year. Thereafter, its growth is expected to be 20% per year for 5 years, and zero after that.

With required return of 10 percent, which stock is most valuable?