Dallas Home Supply paid an annual dividend of $2.40 a share last year. Yesterday, the firm announced the dividend will increase next year by 10% and will stop increasing for 2 years (i.e., stay at the increased level for years 2 and 3) and then starting in year 4, the dividends will increase by 2%. The 2% increase will continue forever. If the required return on this stock is 12 percent, what is the current price of the stock?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Dallas Home Supply paid an annual dividend of $2.40 a share last year. Yesterday, the firm announced the dividend will increase next year by 10% and will stop increasing for 2 years (i.e., stay at the increased level for years 2 and 3) and then starting in year 4, the dividends will increase by 2%. The 2% increase will continue forever. If the required return on this stock is 12 percent, what is the current price of the stock?

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