Target is going to reduce its annual dividend by 10 percent a year for the next two years. After that, it will maintain a constant dividend of $2 a share. Last year, the company paid an annual dividend of $3 per share. What is the market value of this stock today if the required return is 13.7 percent

$15.55

Explanation:

The price of the stock will be the sum of the present values of the dividends and the present value of the terminal value at year 2.

Present value Dividend 1                                  Present value of Dividend 2

= (3 * (1 - 10%)) / (1 + 13.7%)                                   = (3 * (1 - 10%)²) / (1 + 13.7%)²

= $2.37467                                                           = $1.879686162

Present value of terminal value.

The dividend will be constant forever so this is a perpetuity:

Terminal value = Dividend / Required return

= 2 / 13.7%

= $14.59854

Present value = 14.59854 /  (1 + 13.7%)²

= $11.2924582814

Market value = 2.37467 + 1.879686162 + 11.2924582814

= $15.55

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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