W is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect W to begin paying dividends, with the first dividend D2 coming 2 years from today. The dividend should grow rapidly--at a rate of g3,4 per year--during years 3 and 4. After year 4, the company should grow at a constant rate of g per year. If the required return on the stock is rs, what is the value of the stock today (P0)?

INPUT DATA

D2

$2.48

g3,4

25%

g

3.50%

rS

14%

P0