Problem
A company is expected to pay a $1.50/share dividend next quarter, and dividends are expected to grow at an annualized rate of 4% per year. If investors apply an 8% discount rate, then the discounted cash flow model suggests that this stock would be worth how much today?
Suppose investors expect a $1.50/share dividend next quarter, but they feel that dividends will stay at that level into the future (and not grow). If investors apply an 8% discount rate, how much would be worth how much today?