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Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay

Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?

Year 0 1 2 3 4 5 6 7
Growth rate NA NA NA NA 75% 37.5% 8.00% 8.00%
Dividends $0.000 $0.000 $0.000 $0.25 $0.44 $0.61 $0.66 $0.71

Use the rounded values of dividends (as given in the table above) for your subsequent calculations.

Select the correct answer.

a. $61.03
b. $67.77
c. $47.56
d. $13.89
e. $-13.05

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