Julie's X-Ray Company paid $2.00 per share in common stock dividends last year. The company's policy is to allow its dividend to grow at 5 percent for 4 years and then the rate of growth changes to 3 percent per year from year five and on
What is the value of the stock if the required rate of return is 8 percent?
D5 = 2.43 (1 + 0.03 ) = $2.50
P2 = × = $36.81
Value of stock = $36.81 + $7.46 = $44.27
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