The Seneca Maintenance Company currently (as of year 0) pays a common stock dividend of $1.50 per share. Dividends are expected to grow at a rate of 11% per year for the next four years and then to continue growing thereafter at a rate of 5% per year. What is the current value of a share of Seneca common stock to an investor who requires a 14% rate of return?
Should I use PV in Rate of return?
This is to solved using the 2 stage model. The dividends grow at 11% for
four years and then at 5%.
The current value of the share is PV of all the ...
The solution explains how to calculate the current price of a stock using the dividend discount model.