A stock just paid a dividend of 2.00$. Due to the introduction of a proprietary product, the dividend growth rate is expected to be 30% for the next two years, 15% for the years 3 and 4, and then return to a constant growth rate assumption of 4 percent thereafter. The required return on the stock is 18 percent.
Calculate the current expected price of the stock.
I think the price should be 2.6 then divide that by 18%- the dividend growth rate of 30% which equals 21.66, but I have no idea how to incorporate the following years, or even if I did this portion right.
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