Problem:
Nachman Industries just paid a dividend of D0 = $1.75. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%.
Required:
Question: What is the best estimate of the stock's current market value?
a. $59.48
b. $72.57
c. $48.18
d. $50.56
e. $55.91
Note: Provide support for rationale.