1. Sky, Inc. paid a dividend of $4.00 per share on its common stock yesterday. Dividends are expected to grow at a constant rate of 10% for the next three years, at which point the dividends will begin to grow at a constant rate indefinitely. If the stock is selling for $40 today and the required return is 11%, what it the expected annual dividend growth rate after year three? Please share details.
We solve by the following formula: