Problem
Mary Jenkins purchased a common share that just recently paid a dividend of $8.10. (Dividends are paid annually.) The interest rate is 11.0%, compounded annually. The dividend is expected to grow at 2.50% per annum in perpetuity
What is the value of the common share?
What if the dividend was expected to grow at 10.0% per annum for the first two years and then at 2.5% per annum in perpetuity?