Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?
Year0
1
2
3
4
5
6
Growth rateNA
NA
NA
NA
50.00%
25.00%
8.00%
Dividends$0.000
$0.000
$0.000
$0.250
$0.375
$0.469
$0.506
A. $9.94
B. $10.19
C. $10.45
D. $10.72
E. $10.99
Answer: D
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