by leaps-n-bounds due to its superior customer service onal knowledge of local m

Question

by leaps-n-bounds due to its superior customer service onal knowledge of local markets and clients. As such, its dividend is expected to grow Beverly Hills Banking has been growing and pers by 15% over the next year, then by 12% for the following two years, andthen will level off to a constant growth in dividends of 6%. Assume the dividend just paid was Do and the required return is R. Draw a timeline showing the minimum relevant cash flows and then write the equation to show what you should pay for a share of BHB stock today

Explanation / Answer

Year Year Year Year 0 1 2 3 Dividend D0+15% 1.15*112% D0 1.288*112% D0 Dividend 1.15 D0 1.288 D0 1.44256 D0 Price at Y3 for indefinite dividends 4th year onwards 1.44256*106% D0/(R-6%) PV of these values 1.15 D0/(1+R) 1.288 D0/(1+R)^2 1.44256 D0/(1+R)^3 1.44256*106% D0/(R-6%)*(1+R)^3 Share price today will be sum of all PV

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