Compute the present value of a Stock based on dividend payments

Firm X is expected to pay its first annual dividend 5 years from now. That payment will be $3.10 a share. Starting in year 6, the company will increase the dividend by 2 percent per year. The required return is 15 percent. What is the value of this stock today?
1. $11.86

2. $12.09

3. $13.63

4. $14.66

5. $15.71

Solution Preview

The value of the stock is the present value of all dividends. The dividend in year 5 D5 = 3.10 ...

Solution Summary

The solution computes the present value of a stock based on dividend payments.

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D)

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b. If the discount rate for thestock is 12 percent, at what price will thestock sell?
c. What is the expe