Vandelay Industries, a latex company, just paid $7.40 per share in annual dividends (i.e. D0 = $7.40), and has historically grown that amount by 5% a year. What is the current value of the stock to an investor who requires a 12.5% return under each of the following scenarios?
a) Dividends continue to grow at the historical rate (i.e. 5%)
b) The dividend growth rate is expected to permanently increase to 7%
c) The dividend growth rate is expected to permanently decrease to 3%
a) Current stock value = $103.6 b)... View the full answer