Apple Computer Incorporated is expected to grow at an exceptionally high rate over the next 3
years due to various new project launches.
(A) One Analyst estimates that this venture will result in a growth rate in dividends of 50% for
the next 2 years and 30% for the third year, before reverting back to a constant rate of 8% that is
expected to continue indefinitely afterwards. Assuming this scenario is correct, if Apple
Computer paid a $2.12 dividend yesterday (D0=$2.12) and the stock is valued according to a
required rate of return of 12%, what is the value of a share of Apple Computer stock today?
Is that correct?
The value of the stock... View the full answer