Solving for a stock’s present value with 2-Part DDM (Copy)
King Gnu Inc.’s first quarterly dividend of $2 per share is expected to be paid 6 months from today. From then on, dividends will grow by 2% per quarter for three years (for 12 quarters following the first payment). After three years, the dividends will start declining by 1% per quarter in perpetuity. Assume that King Gnu Inc.’s required rate of return is 15% (Effective semi-annual rate). What is the price of a share of King Gnu Inc.’s today?