Review problem on the growth rate of dividends

Reference no: EM131935793

Question: Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry and just paid a dividend (D0) of $2.5. You expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and 30% during the second year (g1,2 = 30%). After Year 2, dividend growth will be constant at 6%. What is the required rate of return on your company's stock? What is the estimated value per share of your firm's stock? Do not round intermediate calculations. Round your answer to the nearest cent.

Reference no: EM131935793

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