Could I Industries just paid a dividend of $1.62 per share. The dividends are expected to grow at a rate of 20 percent for the next four years and then level off to a growth rate of 4 percent indefinitely. If the required return is 12 percent, what is the value of the stock today

Explanation:

Using the dividend growth model = Do(1+g)/Ke-g

Do=1.62$

G=4%

Ke=12%

Do(1+g)/Ke-g  =  2.0736(1+4%)/12%-4%

                      =   1.6848

/8%

                      =   53.916

                 YearYearYearYearYear  

                    0             1             2           3            4  

                          20%  20%  20%20%  

Dividend             1        1.2      1.44  1.7282.0736  

Ifninty dividend                                               55.91*  

Total Cashflows 1    1.2    1.44         1.72855.98  

Pres.Val @12%    1     1.071421.14795  1.22995   35.583

Value of stock40.030    

answer; rapid growth in buyer demand and high buyer switching cost;