The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 16 percent a year for the next 4 years and then decreasing the growth rate to 4 percent per year. The company just paid its annual dividend in the amount of $2.30 per share. What is the current value of one share of this stock if the required rate of return is 7.80 percent? $95.49 $113.97 $97.79 $116.27 $84.40
A. $95.49
P4 = ($2.30 × 1.164 × 1.04) / (0.078 – 0.04) = $113.97498
P0 = ($2.30 × 1.16) / 1.078 + ($2.30 × 1.162) / 1.0782 + ($2.30 × 1.163) / 1.0783 + ($2.30 × 1.164) / 1.0784 + $113.97498 / 1.0784 = $95.49
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