Spectrum Inc., an automobile manufacturer, is interested in measuring the customer satisfaction of car owners. It decides to col
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Answer: $36.50
Explanation:
The price she will be willing to be paid according to the Dividend Discount model is calculated by finding the present value of the future dividends and the terminal value.
Dividend year 1 = 1 * (1 + 20%) = $1.20
Dividend year 2 = 1.20 * (1 + 20%) = $1.44
Dividend year 3 = 1.44 * (1 + 15%) = $1.656
Terminal value = Dividend in year 4 / (required return - growth rate)
= (1.656 * (1 + 6%)) / ( 10% - 6%)
= $43.884
= $36.50