Nonconstant growth stock valuation assume that the average firm in your company's industry is expected to grow at a constant rate of 5% and that its dividend yield is 6%. your company is about as risky as the average firm in the industry and just paid a dividend (d0) of $3. you expect that the growth rate of dividends will be 50% during the first year (g0,1 = 50%) and 25% during the second year (g1,2 = 25%). after year 2, dividend growth will be constant at 5%. what is the required rate of return on your company’s stock? what is the estimated value per share of your firm’s stock? do not round intermediate calculations. round the monetary value to the nearest cent and percentage value to the nearest whole number.

Rate of return of the company 8.15%

Explanation:

"Do not round intermediate calculations." We will work with as many decimal as needed to provide the most accurate answer.

From the dividends yield we will calculate the Stock market price:

dividends/market price = 0.06

  3/market price = 0.06

3/0.06 = market price = 100

100 is the value of the PV of all the dividends inflow

Now we will calcualte the grow in the market prce:

100 x 1.5 in the first year x 1.25 in the second = 187.5

Then, we can solve for rate using the gordon model:

D2 will be the D0 of the model

So we use Dividends for the third year.

D0 = $3

D1 =  D0 x 1.5  = 3   x 1.5   = 4.5

D2 = D1 x 1.25 = 4.5x 1.25 = 5.625

D3  =  5.625 x 1.05 =5,90625‬

We set up the gordon formula

rate of return:  0.0815 = 8.15%

the answerr would be 1