35.10 = (x/1.11) + (1.25x/1.11^2) + (1.25^2x/1.11^2) + (1.25^2)(1.20))x/1.11^3) + [(1.25^2)(1.20)(1.06)x / (0.11 - 0.06)] / 1.11^3
where D = dividend, the formula above is simply:
Price = D1/1.11 + D2/1.11^2 + D3/1.11^3 + Terminal value/1.11^3
where Terminal value is (using Gordon growth model): D4 / (r-g)
Note that Terminal value is discounted only 3 years. That's because the price is known IN year 3 based on the D4 (future) dividend(s) at a constant growth rate.
x = $1.04404
PerfectlySoft Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 20 percent over the following year, and then 6 percent per year thereafter indefinitely. The required return on this stock is 11 percent, and the stock currently sells for $35.1 per share. What is the projected dividend for the coming year? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Any help in solving this is greatly appreciated!
