James Consol Company currently pays a dividend of $2.5 per share on its common stock. The company expects to increase the dividend at a 5 percent annual rate for the first two years and at a8 percent rate for the next six years, and then grow the dividend at a 3 percent rate thereafter. This phased-growth pattern is in keeping with the expected life cycle of earnings. You require a 10 percent return to invest in this stock. What value should you place on a share of this 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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James Consol Company currently pays a dividend of $2.5 per share on its common
stock. The company expects to increase the dividend at a 5 percent annual rate for the
first two years and at a8 percent rate for the next six years, and then grow the dividend
at a 3 percent rate thereafter. This phased-growth pattern is in keeping with the
expected life cycle of earnings. You require a 10 percent return to invest in this stock.
What value should you place on a share of this stock?
Transcribed Image Text:James Consol Company currently pays a dividend of $2.5 per share on its common stock. The company expects to increase the dividend at a 5 percent annual rate for the first two years and at a8 percent rate for the next six years, and then grow the dividend at a 3 percent rate thereafter. This phased-growth pattern is in keeping with the expected life cycle of earnings. You require a 10 percent return to invest in this stock. What value should you place on a share of this stock?
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