Problem:
CPU Company currently (t = 0) pays a dividend of $2.50 per share on its common stock. Dividends are expected to increase at the rate of $.25 per share for the next several years.
Required:
Question: Determine the current value of CPU's common stock to an investor who expects to be able to sell the stock for $35 per share after 3 years, given that the investor requires a 14% rate of return on this security.
Note: Provide support for rationale.