Problem:
You are considering the purchase of Wahoo, Inc. The firm just paid a dividend of $4.20 per share. The stock is selling for $115 per share. Security analysts agree with top management in projecting steady growth of 12% in dividends and earnings over the foreseeable future. Your required rate of return for stocks of this type is 17.5%.
Requirement:
Question: If you were to purchase and hold the stock for three years, what would the expected dividends be worth today?
- $12.60
- $9.21
- $17.12
- $15.55
- $11.46
Note: Show all workings.