You would use the D(0) of 1.25 to compute your D(1) and that value to compute D(2) and so on using the extraordinary growth rates mentioned, before it goes to the constant growth. So it would not get added back anywhere since it was already paid, and your value is based on future cash flows, but you would have used it already to get your other Dividend payments.

So D(1)= 1.25(1.20)

The company just paid a dividend of $1.25. Dividends are expected to grow at rates of 20 percent, 35 percent, 30 percent, 20 percent, and 18 percent annually over the next five years, respectively. Thereafter, management expects dividends to grow at a constant rate of 4 percent. If the required rate

of return is 14 percent, what is the stock worth today?

I've calculated the value of the stock after year 5. Now, to go back to get the PV of the stock, do I include the initial dividend of $1.25? Would the formula be:

P(0) = D(1)/(1+R) + D(2)/(1+R)^2 + ...... D(5)/(1+R)^5 + P(5)/(1+R)^5

or do I need to include D(0), my initial dividend of $1.25, in the formula? If I need to add that in, where would it go? Because the formula I'm using only includes the next five annual rates.