Question: Valuation of a constant growth stock
Investors require a 15% rate of return on Levine Company's stock (that is, rs = 15%).
What is its value if the previous dividend was D0 = $3.75 and investors expect dividends to grow at a constant annual rate of
(1) -5%,
(2) 0%,
(3) 7%, or
(4) 11%?
Round answers to the nearest hundredth.