Recent change in management promises brighter future

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Reference no: EM132032629

The VSE Corporation currently pays no dividend because of depressed earnings. A recent change in management promises a brighter future. Investors expect VSE to pay a dividend of $0.5 next year (the end of year 1). This dividend is expected to increase to $1.75 the following year and to grow at a rate of 8 percent per annum for the following 2 years (years 3 and 4). Chuck Brown, a new investor, expects the price of the stock to increase 50 percent in value between now (time zero) and the end of year 3. If Brown plans to hold the stock for 2 years and requires a rate of return of 20 percent on his investment, what value would he place on the stock today?

Reference no: EM132032629

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