Central Development Company just paid a dividend of $1.50 per share. The company is in a very profitable growth mode and expects that its dividend will grow 10% annually over the next four years. In the spirit of under promising and over delivering, Central Development has told investors that after the fourth year it expects the annual dividend to grow at a more reasonable rate of 2% per year. Currently the risk free rate is 2.5%, the market risk premium is 6.5% and Central's beta is 0.8.
How much are you willing o pay for Central's stock today?
If you buy Central's stock today, what price do you expect to sell it for at the end of year 5?
Can you please show work