$[$Nonconstant Growth Model$]$ Desi Inc. recently paid a dividend, $D_0=$$$1\mathrm{.}25.$ You expect their

dividends to grow by $12\%$ annually for the next $4$ years. After year $4,$ you expect the dividends to grow

at a constant rate of $5\%$ per year. You require a $9\%$ return on Desi's stock. What is the most you

should be willing to pay for this stock?

a$.$ $$41\mathrm{.}93$

sep $1)$

$D_1=1\mathrm{.}25(1\mathrm{.}12)=1\mathrm{.}4,$ step $2$

b$.$ $$47\mathrm{.}28$

$P_2=1\mathrm{.}4(1\mathrm{.}12)=1\mathrm{.}5680$

c$.$ $$48\mathrm{.}62$

d$.$ $$52\mathrm{.}28$

e$.)$ $$55\mathrm{.}47$

$D_3=1\mathrm{.}5680(1\mathrm{.}12)=1\mathrm{.}7562,PV{D}_3=\frac{1\mathrm{.}7562}{1\mathrm{.}093}=1\mathrm{.}3561$

$D_4=1\mathrm{.}7562(1\mathrm{.}12)=1\mathrm{.}9669$ sum $5+4=$

$D_5=1\mathrm{.}9669(1\mathrm{.}05)=2\mathrm{.}0652,PV{D}_5=\frac{2\mathrm{.}0652}{9\%-5\%}=\frac{2\mathrm{.}0652}{\mathrm{.}04}=$

$P{V}_{D_5}=\frac{2\mathrm{.}0652}{9\%-5\%}=\frac{2\mathrm{.}0652}{\mathrm{.}04}=$

$42\mathrm{.}43$