Problem $16$

Intro

A stock just paid an annual dividend of $$1\mathrm{.}4.$ The dividend is expected to grow by $6\%$ per year for the next $3$ years. The growth rate of dividends will then fall steadily $($linearly$)$ from $6\%$ after $3$ years to $3\%$ in year $6.$

The required rate of return is $12\%.$

Part $1$

p Attempt $\frac{1}{6}$ for $10$ pts$.$

What is the value of the stock if the dividend growth rate will stay $0\mathrm{.}03(3\%)$ forever after $6$ years?

Part $2$

Attempt $\frac{1}{6}$ for $10$ pts$.$

In $6$ years, the P$/$E ratio is expected to be $19$ and the payout ratio to be $80\%.$ What is the value of the stock when using the P$/$E ratio?