Just paid a dividend of $1.60 per share. the company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. if the required return on the company's stock is 17 percent, what will a share of stock sell for today

The share will sell for $16.31

Explanation:

From the given information, the schedule of expected dividends is shown below:

Year     Growth  Dividend Calculation  

0                        1.6  

1            20%      1.6(1.2) =1.92

2           15%       1.6(1.2)(1.15) =2.208

3            10%      1.6(1.2)(1.15)(1.1) = 2.4288

4            5%       1.6(1.2)(1.15)(1.1)(1.05) = 2.55024

5            5%       1.6(1.2)(1.15)(1.1)(1.05)(1.05) =2.677752

Price of the stock today = .

where P4 =

Price of the stock today = = $16.31

the answer is a.

by: nicholas dooley

answer; someone must cover the cost associated with the provision of scarce goods in both sectors;