Suppose Dysfunctional Inc. has the following (variable) dividends and costs of common equity for the next five years.
| t |
D(t) |
kcs |
| 1 |
6.65 |
15% |
| 2 |
3.37 |
8% |
| 3 |
2.37 |
7% |
| 4 |
8.12 |
6% |
| 5+ |
7.56 |
5% |
Note that the dividends past year 5 will grow at a fixed, annual rate of 1% and the costs of common equity will remained fixed at an annual rate of 4%. What should the price of this stock be?