Presently, Stock a Pays a Dividend of $2

question 7

Essay

Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20 percent. Thus the dividend payments will be
       Year      Dividend
         1        $1.20
         2         1.44
         3         1.73
         4         2.07

After this initial period of super growth, the rate of increase in the dividend should decline to 8 percent. If you want to earn 12 percent on investments in common stock, what is the maximum you should pay for this stock?

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Definitions:

Leaf Primordia

Young, undeveloped leaves that are in the earliest stages of growth, found in the buds of plants.

Apical Meristem

Regions of rapidly dividing cells in plants located at the tips of roots and shoots, responsible for primary growth and elongation.

Terminal Bud

Bud that develops at the apex of a shoot.

Rhizomes

Underground plant stems capable of producing the shoot and root systems of a new plant, contributing to asexual reproduction and the spread of the plant.