In 2022, Elon Musk purchased Twitter (now X) for $54.20 per share, a total valuation of $44 billion. Prior to the acquisition, investors were anticipating a dividend of $0.375 per share in 2023 which would double to $0.75 per share in 2024, and double again to $1.50 in 2025. Thereafter, investors expected perpetual dividend growth of 5% per year.

a. If the investors demanded a rate of return of 9% on their investment, what was a fair value of one share of Twitter prior to the acquisition?

b. Assume that Musk likewise thought he could double the dividends in both 2024 and 2025 and grow them perpetually at 5% every year thereafter forever. What must he raise the 2023 dividend to in order to justify the $54.20 share price he paid in 2022? Hint: Use GoalSeek.

c. Since the acquisition, Musk has failed to realize the improvements in financial performance that he anticipated. The dividend for this year is anticipated to be just $0.25 per share and growth will only be 10% in 2024 and another 10% in 2025, before falling to its long-term perpetual growth rate of 5% every year thereafter. Assume that the 2023 dividend will be paid tomorrow and the 2024 dividend will be paid one year from now. Assuming Musk is still looking for a 9% rate of return, what is your estimate of the fair value of one share of Twitter today?