Whitehurst Associates is considering a substantial investment in the stock of Ivanhoe Enterprises. Ivanhoe currently (time 0) pays a dividend of $3 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.
Ivanhoe's marginal tax rate is 40 percent. Whitehurst expects the value of the Ivanhoe stock to increase by 40 percent between now and the beginning of year 5.
If Whitehurst requires a 12 percent rate of return on investments of this type, what value would Whitehurst place on the Ivanhoe stock?