Question
Please I need help! An analyst uses a two-stage variable growth model to estimate the value of Old Maid Company's common stock. The most recent
Please I need help! An analyst uses a two-stage variable growth model to estimate the value of Old Maid Company's common stock. The most recent annual dividend paid by the company was $3 per share. The analyst expects dividends to increase 8% per year for the next 3 years and then drop to 4% starting in year 4 and remain stable for the foreseable future. The required rate of return used for the analysis is 10%
a) What are the expected dividends for the next 4 years?
b) What is the value of the stock attributable to the first 3 years of dividends? (use NPV function)
c) What is the value of the stock at the end of year 3? (use constant-growth model)
d) What is the value of the stock attributable to years 4 and beyond? (use pv function, where answer to part C is the fv)
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