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How much should be willing to pay for the lc stock

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Lester Corporation's (LC's) latest annual dividend of ?1.25 a share was paid yesterday and maintained its historic 7% annual rate of growth. You plan to purchase the stock today because you believe that the dividend growth rate will increase to 8% for the next three years and the selling price of the stock will be ?40 per share at the end of that time.

Question a. How much should you be willing to pay for the LC's stock if you require a 12% return?

Question b. What is the maximum price you should be willing to pay for the LC stock if you believe that the 8% growth rate can be maintained indefinitely and you require a 12% return?

Question c. If the 8% rate of growth is achieved, what will the price be at the end of Year 3, assuming the conditions in part (b)?

Reference no: EM132560143

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