g A stock just paid a dividend of $1.36. The dividend is expected to grow at 27.58% for three years and then grow at 4.00% thereafter. The required return on the stock is 12.56%. What is the value of the stock?

$26.64

Explanation:

Dividend growth rate for years 1 to 3 = 27.58%

Year 1 dividend = current dividend * (1 + growth rate) = 1.36 * 1.2758 = 1.7351

Year 2 dividend = 1.7351 * 1.2758 = 2.2136

Year 3 dividend = 2.2136 * 1.2758 = 2.8241

From year 4 onward, growth rate is constant at 4%. Therefore, using the PV of an annuity formula, the PV (in year 4) of the future dividends will be

PV of dividends from year 4 onward = 34.3115.

Therefore, the value of the stock

Therefore the value of the stock = $26.64.

you have to put the parentheses like this:

in fact, you have to perform the operation inside parentheses first, and then proceed in order: