Problem:
Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20 percent a year for the next 4 years and then decreasing the growth rate to 4 percent per year. The company just paid its annual dividend in the amount of $1.20 per share.
Required:
Question: What is the current value of one share of this stock if the required rate of return is 9.00 percent?
- $42.41
- $35.23
- $42.81
- $48.04
- $39.17
Note: Provide support for your underlying principle.