Micro Corp. just paid dividends of $2 per share. Assume that over the next three years dividends will grow as follows, 5 percent next year, 15 percent in year two, and 25 percent in year 3. After that growth is expected to level off to a constant growth rate of 10 percent per year. The required rate of return is 15 percent. What is the expected price of the stock today? What is the expected price at the end of the second year?
Micro Corp. just paid dividends of $2 per share. Assume that over the next three years dividends will grow as follows, 5 percent next year, 15 percent in year two, and 25 percent in year 3. After that growth is expected to level off to a constant growth rate of 10 percent per year. The required rate of return is 15 percent. What is the expected price of the stock today? What is the expected price at the end of the second year?
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 12P
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