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Dixon Company just paid a dividend of $3.00 on its stock. The growth rate in dividends...

Dixon Company just paid a dividend of $3.00 on its stock. The growth rate in dividends is expected to be 30% from year 1 to year 5. The growth rate will then drop to -5% in years 6 and 7. It will then stabilize at 4% thereafter. Investors require a 15 % return on the stock for the first 5 years, 12% return for the next three years, and then 9% return thereafter. What is the current share price of the stock?

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Answer #1

Current dividand paid Do = $3 Growth rate for 1 to 5 years = 30% طها یه - - - Required Retures for 1 to 5 years = 15t. next 3B) Value of at stak 8th year I @ e using dividend 94 required return discount and 4% grow. Der City) 10.454 (1+0.04) 0.09 -0.

Present value of stock = sum of present value of all future dividends + present value of stock at 8th year

= $ 35.6423 + $ 109.113

= $ 144.7553

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