Question

Westerfield Co. is expected to pay a dividend of $1.10 next year (year 1), $2.95 the year after (year 2), and $3.50 the year after that (year 3). After that, the firm expects to maintain a constant dividend growth rate of 5% per year. What is the value of this stock today if the required return is 8.5%?

Answer 1

What is the value of this stock today if the required return is 8.5%

=1.10/(1+8.5%)^1+2.95/(1+8.5%)^2+3.50/(1+8.5%)^3+((3.50*(1+5%))/(8.5%-5%))/(1+8.5%)^3

=88.47

the above is answer..