Steve's Motor Apps, a software developer specializing in applications for smart phones, has grown rapidly over the last five years. Over the next five years, Steve's expects to pay the dividends shown in the following table, then not pay any dividends for an indefinite period as it uses its resources for an anticipated expansion:
Year Dividends 1$3.0024.2535.7547.00510.00
- If your required rate of return on other software developing companies is 18%, what are you willing to pay for a share of Steve's Motor Apps common stock?
- If the stock is currently selling for $14.37 per share, should you buy? Why or why not?