Assume that Microsoft last dividend was $1.25. It expects to have nonconstant growth of 20% for 2 years (i.e., its next dividend is expected to be $1.25 x 1.20 = $1.50) followed by a constant growth rate of 5% thereafter. Assume that the firm’s required return is 10%.What is the present value of the stock (hint: use the discounted dividend model for a non-constant growth stock)?
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