Final answer:
The value of the stock is determined using a two-stage dividend discount model, that accounts for initial growth of dividends at 20.51% for the first three years and subsequent perpetual growth at 4.22%, discounted at the required return rate of 12.26%.
Step-by-step explanation:
The value of the stock can be calculated using the Gordon Growth Model which accounts for the expected dividend payments that grow at different rates in different periods. Given the stock just paid a dividend of $2.92, the expected growth rate of the dividend is 20.51% for the first three years and then it will grow at a rate of 4.22% indefinitely. The required rate of return on the stock is 12.26%. The stock's value can be estimated by discounting the expected dividends at the required rate of return. To do this, one must calculate the expected dividends for the first three years, discount them to present value, and then determine the value of the remaining dividends that are growing at a perpetual rate post the initial three year period. This is often referred to as a two-stage dividend discount model.