Phoenix Industries has pulled off a miraculous recovery. Four years ago, it was near bankruptcy. Today, it announced a $1 per share dividend to be paid a year from now, the first dividend since the crisis. Analysts expect dividends to increase by $2 a year for another 3 years. After the fourth year, dividend growth is expected to settle down to a more moderate long-term growth rate of 5 percent. If the firm’s investors expect to earn a return of 15 percent on this stock, what must be its price?

Question
  1. Phoenix Industries has pulled off a miraculous recovery. Four years ago, it was near bankruptcy. Today, it announced a $1 per share dividend to be paid a year from now, the first dividend since the crisis. Analysts expect dividends to increase by $2 a year for another 3 years. After the fourth year, dividend growth is expected to settle down to a more moderate long-term growth rate of 5 percent. If the firm’s investors expect to earn a return of 15 percent on this stock, what must be its price?

 

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