Question $3$: Equity Valuation

You own some shares of company ABC. ABC is expected to pay a dividend of $$5$ next year. The

dividend will grow at $10\%$ per year for two years, then at $5\%$ forever. The ROE for ABC is $12\%.$

The payout ratio is $0\mathrm{.}3.$

What$$s the price of the stock today? What$$s the price of the stock in $1$ year?

$$ A timeline is provided in excel. Place each cashflow at the appropriate points in time

D$1$

g$1$

Terminal growth

ROE

p

Price$0$

Price$1$

Dividend $----$ t $012345$