1. Your firm will upgrade its production capacity over the course of the next several years, which will affect its ability to pay common share dividends. Specifically, your company will pay a dividend every other year for the next six years. Your firm plans to pay a dividend of $5 two years from today. The dividend in year four is expected to be 5% greater than the dividend paid in year two. The dividend in year six is expected to be 25% greater than the dividend paid in year four. Dividends are expected to grow at a constant 6% rate thereafter. Find the value of the stock today if investors require a 20% rate of return. Round intermediate steps to four decimals. Round your final answer to two decimals. Do not use the dollar sign when entering your response.
2. XYZ common stock sells for $15 and just paid a $2 dividend per share, which is expected to grow at a rate of 5% indefinitely. You require a 20% rate of return. Should you buy the stock today if you expect to sell it in four years for $25? Get Finance homework help today