What is the current value of the stock to susan

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Reference no: EM131338444

Watkins, Inc., has experienced an explosion in demand for its ram football novelties. The firm currently (time 0) pays a dividend of $0.50 per share. This dividend is expected to increase to $1.00 per share one year from now.

It is expected to grow at a rate of 20 percent per year for the next seven years. Susan seeks your advice regarding the current value of this stock. Susan plans to purchase this stock today, if the price is right, and to hold it for three years.

She believes that the stock will increase in value to $40 at the end of five years. What is the current value of this stock to Susan if she requires a 20 percent rate of return on stocks of this risk level?

Reference no: EM131338444

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