Morning Dew Inc has an odd dividend policy The company has j

Morning Dew, Inc. has an odd dividend policy. The company has just paid a dividend of $2 per share and announced that it will increase the dividend by $6 per share for each of the next five years, and then never pay another dividend. If you require a return of 10% on the company\'s stock, how much will you pay for a share today?

Solution

Current value=Future dividends*Present value of discounting factor(10%,time period)

=8/1.1+14/1.1^2+20/1.1^3+26/1.1^4+32/1.1^5

which is equal to

=$71.50(Approx).