Period of depressed earnings performance

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Excel Corporation has recently witnessed a period of depressed earnings performance. As a result, cash dividend payments have been suspended. Investors do not anticipate a resumption of dividends until 2 years from today, when a yearly dividend of $0.25 will be paid. That yearly dividend is expected to be increased to $0.50 in the following year and $1.45 in the year after that. Beyond the time when the $1.45 dividend is paid, investors expect Excel’s dividends to grow at an annual rate of 3 percent into perpetuity. All dividends are assumed to be paid at the end of each year. If you require a 15 percent rate of return on Excel’s stock, what is the value of one share of this stock to you today?

Reference no: EM132032620

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