Compute the dividends until the dividend growth is constant

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Reference no: EM131354100

You are doing a valuation the stock of Big Taco Inc. a Mexican fast food company. Big Taco just paid an annual dividend of $5.25. You expect the dividend to grow by 15% next year, 10% in the following year, 7.5% for the next 3 years, then 6% and then 5% per year forever.

a. Compute the dividends until the dividend growth is constant.

b. Compute the price of the stock today using the Constant Growth Model assuming a 15% required return.

Reference no: EM131354100

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