Suppose a firm $($like Google or Yahoo or Genentech$)$ currently pays no

dividends. Instead, they use all profits for growth. You expect the growth

opportunities to dry up after a while, so you forecast a $$10$ dividend in year

$6.$ You then expect that dividend to grow at $10\%$ for three years, and then

at $4\%$ in perpetuity. If the return on the $$similar substitute$$ is $15\%,$ what is

your estimate of the stock price today?

$$ D$1$ to D$5=0$

$$ D$6=$ $$10$

$$ Years $7-9$: g$=10\%$ i$.$e$.$ D$7=$ D$6*(1\mathrm{.}10)$ and so on$..$

$$ Year $10$ on: g$=4\%$ i$.$e$.$ D$10=$ D$9*(1\mathrm{.}04)$ and so on$.$