Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 26 pe

Question

Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 4 percent per year indefinitely. The required return on this stock is 10 percent, and the stock currently sells for $64 per share. What is the projected dividend for the coming year?

Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 4 percent per year indefinitely. The required return on this stock is 10 percent, and the stock currently sells for $64 per share. What is the projected dividend for the coming year?

Explanation / Answer

We can find the projected dividend for the coming year using the dividend discount model.

Dividend discount model = Value of stock at T0 = Dividend per share at T1 / [Discount Rate

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