Problem:
Piedmont Enterprises currently pays a dividend (D0) of $1 per share. This dividend is expected to grow at a 20 percent per year rate for the next 2 years, after which it is expected to grow at 6 percent per year for the foreseeable future.
Required:
Question: If you require a 15 percent rate of return on an investment of this type, what price do you expect the stock to sell for at the beginning of year 5?
Note: Explain in detail.