Question
Starbucks Corporation has just paid a dividend of $3. In Years 1 through 3, they project to pay $3.70, $3.75, and $3.80 in dividends, respectively.
Starbucks Corporation has just paid a dividend of $3. In Years 1 through 3, they project to pay $3.70, $3.75, and $3.80 in dividends, respectively. After Year 3, the growth rate of dividends will stabilize and remain at 2% forever. What is the intrinsic value of the firm's stock today? The required rate of return is 8%.
1. Draw the timeline and label everything (cash flows, arrows, interest rate, compounding/discounting). 2. Show the steps needed to solve the problem. Follow the format we did in class (draw the timeline, find the dividends in Stage 1 and Stage 2, discount everything back). Show the formulas.
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