Please show all work, explain formulas used, and explain all work.
Here we have a stock with supernormal growth, but the dividend growth changes every year for the first four years. We can find the price of the stock in Year 3 since the dividend growth rate is constant after the third dividend. The price of the stock in Year 3 will be the dividend in Year 4, divided by the required return minus the constant dividend growth rate. So, the price in Year 3 will be:
P3 = $1.70(1.20)(1.15)(1.10)(1.05) / (.11 – .05) = $45.16
The price of the stock today will be the PV of the first three dividends, plus the PV of the stock price in Year 3, so:
P0 = $1.70(1.20)/(1.11) + $1.70(1.20)(1.15)/1.112 + $1.70(1.20)(1.15)(1.10)/1.113 + $45.16/1.113
P0 = $38.65
Please show all work, explain formulas used, and explain all work. Storico Co. just paid a...
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