Question
Nonconstant Growth: Storico Co. just paid a dividend of $3.65 per share. The company will increase its dividend by 20 percent next year and will
Nonconstant Growth: Storico Co. just paid a dividend of $3.65 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on the companys stock is 12 percent, what will a share of stock sell for today?
Please note that Year 3 is the Terminal Year, because after Year 3 the growth rate is held constant at 5% thus the terminal value is P3 use D4 to calculate P3 then discount back to to T0 and add discounted cash flows of D1-3 to discounted P3 to find P0
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