Compute the value of a stock paying no dividends

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Question: Assume that you are using the dividend discount model ( the gordon model) to value stock the stock currently pays no dividends, but expected to begin paying dividends $3 per share in four years.

a) Compute the value of a stock paying no dividends today, but that is expected to pay annual dividends of $3 in four years. At that time dividends are expected to grow at a constant rate of 5% and the firm's cost of equity is 9%

b) If instead the firm's stock was to pay a constant annual dividend of $3 starting year 4 how would you value that stock?

c) Suppose the stock is expected to grow at a rate of 15% for the next five years that it started paying dividends, then slow to a long-term growth rate of 5%, how much is that stock worth today?

Reference no: EM131939872

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