Mitts Cosmetics Co.’s stock price is $70.95

paid a $2.75 dividend

This dividend is expected to grow by 21% for the next 3 years,

then grow forever at a constant rate, g; and rs = 15%.

Calculation for constant rate thfor e stock expected to grow after Year 3 is as follow

Do =2.75 g 1-3 =21%

Rs =15 %

D1 = D0(1 + g1) = $2.75(1.21) = $3.3275

D2 =D0(1 + g1)(1 + g2) = $ 2.75(1.21)2=4.03 $

D3 = D0(1 + g1)(1 + g2)(1 + g3) =$ 2.75*(1.21)3= $ 4.87

D4 = D0(1 + g1)(1 + g2)(1 + g3)+Do(1+g4) =$ 2.75*(1.21)4= $ 5.89

P1 = P0(1+g) = 70.95*1.21 =85.84

P2 = P1(1+g) = 85.84*1.21 =103.88

P3 = P2(1+g) = 103.88*1.21 =125.69

constant rate is the stock expected to grow after Year 3= D4/P3+G

=5.89/125.69+0.21

=0.05+0.21

=0.256

=0.26

constant rate is the stock expected to grow after Year 3 = 26 %