Reference no: EM131781583

A. A company is expected to pay $3, $10, $15 and $3.05 dividends over the next four years. Afterwards, the company will maintain a constant 5% dividend growth rate forever. If the required return on the stock is 11%, what is the current stock value?

B. YYY Corp. just paid a $2.50 dividend and its dividends are expected to grow at 25% rate for the next three years, then at a constant rate of 6% thereafter forever. If investors require 13% return on this stock, what is the current stock value?

There is NO quick and easy Excel formula for this. You need to discount each of the different dividends during the variable period then add the PV of the cash flows once you hit constant growth. For the constant growth PV you use the dividend discount model to find price at the start of the constant growth period, then discount...for B, for instance, you would calculate the PV of dividends in years 1,2 and 3. You would use the DDM to find the price in year 4, using the constant rate. Then you would discount that terminal value back to time zero and add to the PV of the individual dividends.