American Eagle outfitter (AEO) stock is expected to pay the following dividend stream. Dividends will not be paid at t=1 and t=2, but AEO will pay $2.00/share at t=3 through t=4, inclusively. The dividend at t=5 will be $2.50, and dividends will thereafter grow at a rate of 5% each year, forever. The appropriate required rate of return for valuing AEO stock is 15%.
a. Draw a timeline, depicting the anticipated dividend cash flows for this stock. Please be sure to show all dividends through time period 6..
b. Calculated the price of the stock where it starts growing into infinity (Remember, pt?) What period/time is this price for?
c. Calculate the price of the stock at P0, including all the dividends up to Pt and including Pt itself.
PLEASE explain how you got answers. FWIW, I do have a hp financial calculator.