Calculate the dividend yield and current stock price

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Reference no: EM131052346

Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects annual dividend growth of 40 percent for the next two years, and then 20 percent for the following three years. By the end of year five, other firms will have copycat technology, competition will drive down profit margins, and the sustainable (i.e., constant) growth rate will drop to 8 percent. The most recent annual dividend, D0, was $1.50 per share. Assume investors require a 12% annual return for stocks of similar risk. (8 points)

a) Calculate the present value of each dividend for years 1-5.

b) Calculate the stock price as of the end of year 5.

c) Calculate the current stock price (P0).

d) Calculate the dividend yield (D1/P0)

Reference no: EM131052346

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