Problem:
The earnings and dividends of a medium size company are expected to grow at an annual rate of 15 percent over the next 4 years and then slow to a constant growth rate of 8 percent per year each year thereafter. The firm currently pays a dividend of $0.50 per share.
Required:
Question: What is the value of the common stock to an investor who requires a 14 percent rate of return?
Note: Show supporting computations in good form.