Over the past 10 years, the dividends of Party Time, Inc. have grown at an annual rate of 15 percent. The current (D0) dividend is 3 per share.
This dividend is expected to grow to 3.40 next year, then grow at an annual rate of 10 percent for the following two years and 6 percent per year thereafter. You require a 15 percent rate of return on this stock.
a. What would you be willing to pay for a share of Party Time stock today
b. What price would you anticipate the stock selling for at the beginning of year 3
c. If you anticipated selling the stock at the end of two years,how much would you pay for it today.