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Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?

Year 0 1 2 3 4 5 6

Growth rate NA NA NA NA 50.00% 25.00% 8.00%

Dividends $0.000 $0.000 $0.000 $0.250 $0.375 $0.469 $0.506

a) $9.94 b) $10.19 c) $10.45 d) $10.72 e) $10.99

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Financial Management, Finance

Category:- Financial Management
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