Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20 percent. Thus the dividend payments will be
|
Year
|
Dividend
|
|
1
|
$1.20
|
|
2
|
1.44
|
|
3
|
1.73
|
|
4
|
2.07
|
|
|
|
After this initial period of super growth, the rate of increase in the dividend should decline to 8 percent. If you want to earn 12 percent on investments in common stock, what is the maximum you should pay for this stock?