Question
The current stock price (year 0) of the Sizzling Sausage Corporation (SSC) is $40.50. According to your information and analysis, you expect this company to
The current stock price (year 0) of the Sizzling Sausage Corporation (SSC) is $40.50. According to your information and analysis, you expect this company to pay its first dividend of $2.50 in year 2, and from year 3 on, you expect to see growth in dividends. Specifically, you figure out that the dividends in year 3 will be $2.75 and will then continue to grow for another 15 years at 3.5% per year, after which it will grow 2.5% per year forever. The appropriate discount rate is 9%. If you currently own this stock and may ignore transaction costs, what is the value of this stock according to the above information and does this mean you would want to buy or sell more?
Please use time value of money to explain if possible
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