Over the past 10 years, the dividends of Party Time, Inc. have grown at an annual rate of 15 percent. The current (D0) dividend is $3 per share. This dividend is expected to grow to $3.40 next year, then grow at an annual rate of 10 percent for the following 2 years and 6 percent per year thereafter. You require a 15 percent rate of return on this stock.
- What would you be willing to pay for a share of Party Time stock today?
- What price would you anticipate the stock selling for at the beginning of year 3?
- If you anticipated selling the stock at the end of 2 years, how much would you pay for it today?