Apple Computer Incorporated is expected to grow at an exceptionally high rate over the next 3 years due to various new project launches.
(A) One Analyst estimates that this venture will result in a growth rate in dividends of 50% for the next 2 years and 30% for the third year, before reverting back to a constant rate of 8% that is expected to continue indefinitely afterwards. Assuming this scenario is correct, if Apple
Computer paid a $2.12 dividend yesterday (D0=$2.12) and the stock is valued according to a required rate of return of 12%, what is the value of a share of Apple Computer stock today?
(B) Another Analyst estimates that the venture will result in a 10% constant growth rate in dividends starting today that is expected to continue indefinitely into the future. Assuming this alternative scenario is correct, if Apple Computer paid a $2.12 dividend yesterday (D0=$2.12) and the stock is valued according to a required rate of return of 12%, what is the value of a share of Apple Computer stock today?