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Non-constant growth of dividends

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1) Storico Co. just paid a dividend of $3.50 per share. The company will increase its dividend by 12 percent next year and will then reduce its dividend growth rate by 3 percentage points per year until it reaches the industry average of 3 percent dividend growth, after which the company will keep a constant growth rate, forever. If the required return on Storico stock is 12 percent, a share of stock will sell for $_____ today.

2) Storico Co. just paid a dividend of $6.50 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate, forever. If the required return on Storico stock is 21 percent, a share of stock will sell for $____ today.

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Solution Summary

Calculates stock prices for non-constant growth of dividends.

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