JB Technologies is expected to pay a dividend of $2.10 per share next year, $2.70 on year 2, and $3.50 on year 3. After that, dividends will have a

constant growth of 2% annually. The required rate of return for this stock is 8%. Given this information, what would be the share price for this firm? Your answer should have 2 decimals

Hint: There are two sets of cash flows here that need to be valued separately and then added together. The dividends for the first three years are a

non-constant flow of cash (meaning there is no pattern to the growth). Non-constant dividends are treated just like unequal cash flows and you value them

using the NPV formula in excel. The other set of cash flows, from year 4 and into the future, are a set of constant growth dividends, and are valued

using the constant (Gordon) growth model. Also, being that this set of cash flows begins 4 years in the future, once you calculate the value (price), you

have a FV (3 years in the future). Therefore, you need to put that value into the PV formula and bring it to the same period as the first set of cash flows.

This is explained on pages 309 and 310 of the text book.

Problem 9: Non-Constant Growth Stock