Integrated Mini-case Investor Perceptions of Dividend Growth

Your firm currently pays a quarterly dividend of $1.35. You are planning on doubling this dividend but then keeping it flat for the next three years, after which it is expected to increase at the industry standard rate of 4 percent per year indefinitely. Your required rate of return on your company?s stock is 12.5 percent, and the last $1.35 dividend was just paid.

What will be the time value of money impact on your stock price if all investors are fully informed concerning your future intentions for all dividends? What will be the present value of all expected future dividends if you don?t tell the investors that you will be keeping the quarterly dividend constant for the first three years, and they assume after the fifth coming dividend that dividends will remain at $2.70 indefinitely?