The Robert Phillips Co. currently pays no dividend. The company is anticipating dividends of $0,$0,$0,$.10,$.20,and $.30 over the next 6 years,respectively. After that,the company anticipates increasing the dividend by 4% annually. The first step in computing the value of this stock today,is to compute the value of the stock when it reaches constant growth in year:

Question

Quizplus · Accepted Answer

The company is not paying any dividend currently, which means it is in the initial stages and is yet to reach constant growth. The first time it pays a dividend is in year 4, and the dividends continue to grow at a constant rate of 4% after year 6. Therefore, the value of the stock when it reaches constant growth is in year 6. Hence, option D is the correct choice.