ABC Enterprises is a relatively new firm that appears to be on the road to great success. The company paid their first annual dividend yesterday in the amount of $.28 a share. The company plans to double each annual dividend payment for the next 3 years. After that time, they are planning on paying a constant $1.50 per share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 11.5%
The value of a stock is the present value (discounted at the market rate of return for similar securities, that is, 11.5% in this case) of the dividends it pays. Since the next dividend will be $0.56 and will be paid one year from now, we get the following schedule for ...
Computations done by hand.