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Price of a stock Pt=i=t+1(1+r)lDi+1 If dividend growth =0, then Pt=rD (preferred stock) If dividend growth is constant, then Pt=rgDt+1 If dividend growth is non-constant, individually discount all dividends through the non-constant period. Then apply the constant dividend growth formula to compute the horizon value and discount the horizon value back Required return on a stock (total return) r3= dividend yield + capital gains yield CapitalGainsyield=PtPt+1PtDividendyield=P0D1 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 \$o.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% after year 5 . Assuming a required return of 11.00%, what is your estimate of the stock's current value (Po) ? $12.31 519.44 $18.00 $12.19