Question:
Napa Auto Parts' last dividend (t=0) was $1.00 and the company expects to experience no growth for the next 3 years (from t=0 - t=3). However, Napa will grow at an annual rate of 10% between the third and fourth year and between the fourth and fifth years. Starting from the end of the fifth year, Napa will grow at a 5% rate, thereafter.
The required rate of return for Napa is 12% for the first 3 years, 8% for years 4 and 5, and 10% for years 6 onwards? What is the current price (t=0) of Napa shares?