Um Free McGee Co.'s (UFMC's) stock will (or, more accurately, is expected to) pay a dividend per share of $2.08 in one year. Dividends are expected to grow by 4.00% per year, forever. Use a required return of 9.00% (per year) and calculate a fair, current share price for UFMC stock.

Answer:

Please note, as this paragraph consistutes some additional, required learning: An alternate, perfectly common version of this problem will tell you a dividend that was "just paid" (i.e., paid just seconds ago ... but, importantly, in the past) and you will again be asked to value the exact same stock. Keeping in mind that the correct equation to value a stock at t=0 is Div1/(r-g) ... not Div0/(r-g). But, please understand that the first sentence above could have said this instead: "Um Free McGee Co. stock just paid a $2.00 dividend per share." The solution, though, would be the same! You just first have to determine Div1 before deploying the usual dividend-growth valuation equation.