Kruger Associates is considering a substantial investment in the stock of McIntyre Enterprises. McIntyre currently (time 0) pays a dividend of $1.50 per share.
This dividend is expected to grow at 15 percent per year for the next three years and 10 percent per year for the following three years. McIntyre's marginal tax rate is 40 percent.
Kruger expects the value of the McIntyre stock to increase by 50 percent between now and the beginning of year 5.
If Kruger requires a 12 percent rate of return on investments of this type, what value would Kruger place on the McIntyre stock?