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QUESTION
Phillips, Inc. just paid a dividend of $3.25 per share on its common stock (that is, D0 = 3.
Phillips, Inc. just paid a dividend of $3.25 per share on its common stock (that is, D0 = 3.25). Investors expect the dividend to grow at 40% in years 1 and 2, they expect the dividend to grow at 20% in year 3 and they expect that all future dividends (that is, dividends in years 4, 5, ..., infinity) to grow at a constant rate of 5% per year. If the cost of capital for Phillips, Inc. stock is 15%, what is the current price of the stock?
