You forecast that a share of stock in Bumbershoot Co. will pay a $5.00 dividend one year from now. Additionally, you predict that dividends will then grow by 20.00% for two years. Across years 4, 5, and 6, dividends will grow by 10.00%.

Finally, you forecast for dividends to grow by 6.00% forever. Use a required rate of return of 14.00% and calculate a fair price for a share of this stock today. [All growth rates and the required return are all per year.]

In class, we covered how to identify the "anchor dividend" for the delayed, growing perpetuity portion of the infinite stream of dividends. For this problem, the "anchor dividend" is

enter your response here. [For the fill-in-the-blank answer here, please use the notation of the format Div1, Div2, etc. and enter your text answer to indicate the "anchor dividend". Recall that Div1 is short-hand lingo for the dividend at t=1, Div2 is short for the dividend at t=2, etc.]

"Diagramming the Play": In words, the solution to this problem [that you will deploy next] involves calculating (1) present values of enter your response here single-sum dividends and (2) the present value of the delayed, growing perpetuity that's anchored by enter your response here.

[For the first fill-in-the-blank, enter the number of single sums (spelled out as as a word (e.g., one, two, three, or whatever)). In the second fill-in-the-blank, enter the same answer here as you entered above.]

Okay, now calculate the stock's price.

Answer:

[Round your answer to the nearest cent.]

Here is a timeline to help you to organize your math.

time	0	1	2	3	4	5	6	7	8	etc.
Div(t)		5.00	5.00 x 1.20	5.00 x 1.20^2	5.00 x 1.20^2 x 1.10	5.00 x 1.20^2 x 1.10^2	5.00 x 1.20^2 x 1.10^3 [ANCHOR]	5.00 x 1.20^2 x 1.10^3 x 1.06	5.00 x 1.20^2 x 1.10^3 x 1.06^2	g=6.00% forever

or, even more simplified to show actual dividend numbers:

time	0	1	2	3	4	5	6	7	8	etc.
Div(t)		5.00	6.00	7.20	7.92	8.7120	9.5832 [ANCHOR]	9.5832 x 1.06	9.5832 x 1.06^2	g=6.00% forever