Question
XYZ Inc. is expected to pay no dividends for the next 3 years. However, at the end of the fourth year (at time 4), the
XYZ Inc. is expected to pay no dividends for the next 3 years. However, at the end of the fourth year (at time 4), the company is expected to pay a dividend of $1/share. Dividends are expected to grow at 10% per year for the following 6 years (through the end of the 10th year, i.e., time 10), then to grow at 5% every year thereafter (forever). Assume the appropriate discount rate (required return) is 10%.
a. What is the expected value of the stock at time 10?
b. What is the expected value of the stock at time 4?
c. What is the value of the stock today?
Please use excel!
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