Dunder-Mifflin/Saber has announced that it will begin paying dividends with the first dividend of $3.50 per...
Dunder-Mifflin/Saber has announced that it will begin paying dividends with the first dividend of $3.50 per share to be paid in three years and grow at 6% per year afterward. If you require a return of 18%, what is the most you would pay for the stock today?
Homework Answers
Value after year 3=(D3*Growth rate)/(Required rate-Growth rate)
=(3.5*1.06)/(0.18-0.06)
=(3.5*1.06)/(0.18-0.06)
=$30.9167
Hence current value=Future dividend and value*Present value of discounting factor(rate%,time period)
=3.5/1.18^3+30.9167/1.18^3
=$20.95(Approx).
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