Ridgemont Can Company latest dividend of $1.50 was paid yesterday and maintained its historic 7 percent annual growth rate. You plan to purchase the stock today because you feel that the growth rate will increase to 8 percent for the next three years and the stock will then reach $50 per share.
How much should you be willing to pay for the stock if you require a 14 percent return?
How much would you be willing to pay if the growth rate of 8 percent could be maintained indefinitely? What would be the price the end of year 3?
If the growth rate declines to 7 percent after 3 years and is maintained indefinitely, what would be the price today?
I’m looking for step by step explanations.