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Assume that the average firm in your company’s industry is expected to
grow at a constant rate of 6% and that its dividend yield is 7%. Your
company is about as risky as the average firm in the industry, but it
has just successfully completed some R&D work that leads you to
expect that its earnings and dividends will grow at a rate of 50% [D1 =
D0 (1+g) = D0 (1.50)] this year and 25% the following year, after which
growth should match the 6% industry average. The last dividend paid (D0)
was $1. What is the value per share of your firm’s stock?
