Final answer:
To calculate the value of a share of stock in Holdom Corporation, one must use the Gordon Growth Model to discount future dividends that are expected to grow at variable rates until stabilizing at 5%. The required rate of return is 11%. The solution requires projecting dividends according to the given growth patterns and discounting them to present value.
Step-by-step explanation:
The student's question involves calculating the value of a share of stock in Holdom Corporation, given certain information about future dividends and the required rate of return for investors. This type of problem falls under the category of finance and is usually covered in business courses at the college level. The essential concept here is the Gordon Growth Model, which is used to determine the present value of an infinite series of future dividends that are expected to grow at a constant rate, applying a discount rate that represents the required rate of return for an investment. To solve the problem presented, one must calculate the present value of future dividends considering the varying dividend growth rates that eventually stabilize at the industry average. To do this, the dividends must be forecasted based on the given growth rates and then discounted back to the present using the required return of 11%. The calculation will involve determining the expected dividend payments in the coming years and using the formula for present value to find out what a share of stock will be worth in year 2.