Question
. Generic Pharmaceuticals (GP) has just paid an annual dividend on its common stock of $0.50 per share. Analysts expect GPs annual dividend to grow
. Generic Pharmaceuticals (GP) has just paid an annual dividend on its common stock of $0.50 per share. Analysts expect GPs annual dividend to grow by100% next year, 50% the year following, 40% per year for the next two years, and then settle down to an annual growth rate of 2% per year into perpetuity. (Annual dividend payments are shown in the diagram below.) If stockholders require an 10% annual return on GP common, what is the value of a share of GP today?
$0.50 $1.00 $1.50 $2.10 $2.94 $2.9988 $3.0588 $3.1200 $3.1824 $3.2460
-----|--------------|--------------|-------------|--------------|--------------|--------------|---------------|---------------|--------------|-----
0 1 2 3 4 5 6 7 8 9
a. $29.02
b. $31.34
c. $33.59
d. $45.04
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