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Dallas Company just paid a dividend of $2.00 (D0). It expected to increase by 12% per year for the next three years. Growth will slow

Dallas Company just paid a dividend of $2.00 (D0). It expected to increase by 12% per year for the next three years. Growth will slow down to 8% per year for the following three years, and finally slow to a 5% per year thereafter. Your required rate of return is 25%, how much you are willing to pay for this stock?What is the expected return of the economy?

Economic Conditions

  • Strong economy, no inflation (Probability: 0.31, Rate of Return: 20%)
  • Weak economy, above average inflation (Probability: 0.29, Rate of return: -5%)
  • No major change in economy (Probability: 0.4, rate of return: 10%)

What is the expected return of the economy?

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