In: Finance
Li’s firm is fast growing. Therefore, it will pay no dividend for the next 5 years. After that, Li’s firm will initiate dividend payment. The first dividend will be $2 (at the end of the 6th year) and the dividend will grow at a rate of 5% for 10 years. Then the industry starts to stabilize, and Li’s firm will pay $3 forever. If the required rate of return is 10%, calculate the stock price.