XYZ: Stock pricing with uneven dividend growth rate

The XYZ Company currently (that is, as of year 0) pays a common stock dividend of $1.5 per share. Dividend are expected to grow at a rate of 11% per year for the next 4 years and then continue growing thereafter at a rate of 5% per year. What is the current value of a share of Seneca common stock to an investor who require a 14% rate of return?

Hint:

The dividend growth rate g(t) changes during the history.

Dividend(t) = Dividend(t-1) * (1+g(t))

The terminal value P4 = D5 / (r-g5)

The cash flow for year 1-4, including both dividend and terminal value.

The stock price is calculated as the sum of the present value of the cash flows from year 1-4.

price = PV(D1) + PV(D2) + PV(D3) + PV(D4 + P4)

	year	0	1	2	3	4	5	6
	uneven growth rate		0.11	0.11	0.11	0.11	0.05
	Dividend	1.50	1.67	1.85	2.05	2.28	2.39
	terminal price					??
	future cash flow		1.67	1.85	2.05	28.84
a	Discount rate	??
b	current price of future dividend	??
c	current price of future dividends and terminal value ??

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XYZ-1: How much is the expected dividend for year 4?

Group of answer choices

2.36

1.85

2.00

2.28

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XYZ-2: How much is the expected dividend for year 5?

Group of answer choices

3.10

2.50

2.39

2.28

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XYZ-3: How much is the terminal price at year 4?

Hint: P(t) = D(t+1) / (r-g)

Group of answer choices

27.65

25.67

26.75

26.57

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XYZ-5:

How much is the current price of the stock, calculated as the present value of future cash flow?

Group of answer choices

21.34

25.65

22.15

20.43

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