A firm recently announced that it will pay annual dividends of $0.80, $0.92, and

Question

A firm recently announced that it will pay annual dividends of $0.80, $0.92, and $1.10 a share over the next three years, respectively. After that, the firm plans to increase its dividend by 3 percent annually. What is one share of this stock worth to you today if you require a 12 percent rate of return?

Answer is $11.19. Please show work. Having trouble figuring it out

A firm recently announced that it will pay annual dividends of $0.80, $0.92, and $1.10 a share over the next three years, respectively. After that, the firm plans to increase its dividend by 3 percent annually. What is one share of this stock worth to you today if you require a 12 percent rate of return?

Answer is $11.19. Please show work. Having trouble figuring it out

Explanation / Answer

A firm recently announced that it will pay annual dividends of $0.80, $0.92, and $1.10 a share over the next three years, respectively. After that, the firm plans to increase its dividend by 3 percent annually. What is one share of this stock worth to you today if you require a 12 percent rate of return?

Answer is $11.19. Please show work. Having trouble figuring it out

One share of this stock worth to you today = D1/(1+Re) + D2/(1+Re)^2 + D3/(1+Re)^3 + (D4/(Re-g))/(1+Re)^3

One share of this stock worth to you today = 0.80/1.12 + 0.92/1.12^2 + 1.10/1.12^3 + (1.10*1.03/(12%-3%))/1.12^3

One share of this stock worth to you today = $ 11.19

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