Crosby Inc. has an 11% required rate of return. It does not expect to

Crosby Inc. has an 11% required rate of return. It does not expect to initiate dividends for 20 years, at which time it will pay $4.00 per share in dividends. At that time, Crosby expects its dividends to grow at 6% forever.

What is an estimate of Crosby’s price in 20 years (P20) if its dividend at the end of year 20 is $4.00?
A) $34.80
B) $55.00
C) $57.50
D) $84.80

ANSWER

Answer: D
Explanation: D) We use the formula: P20 = . Inserting our values, we get:
P20 = = = $84.80.