Julie's X-Ray Company paid $2.00 per share in common stock dividends last year. The company will allow its dividend to grow at 5 percent for 4 years, and after that the rate of growth will be 3 percent forever. What is the value of the stock if the required rate of return is 8 percent?
What will be an ideal response?
D5 = 2.43 (1 + 0.03) = $2.50
P2 = 2.50/0.08-0.03 × 1/(1+0.08)4 = $36.81
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