The procedure first involves the determination of price of stock in year 6 when both the rate of dividend growth and returns stabilizes to infinity. The price of the stock for the year 6 will be determined by the value of dividend in year 7 divided by the returns required less growth rate of dividends as follows:
= $ 131.91566462
The next step is to find the price in the third year. This year is very necessary for it this time where the returns change. The price value in year three is is the present value PV of dividends in the forth, fifth and sixth year in addition to the present value of stock in year 6. Thus in year 3;
= $ 108.196355383
The present value is an expression of present value of dividends in the first , second and third year in addition the value of stork in year 3.
= $ 84.716431644
= $ 84.72
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