Equity Valuation Question expected, couple, equity

adehbone

Assume that a stock is expected to pay dividends at the end of year 1 and year 2 of $1.25 and $1.56, respectively. Dividends are expected to grow at a 5% rate thereafter. Assuming that cost of equity is 11%, what is the value of the stock?
Please show your work. I will post the response after a couple of responses.

burning0spear

I got $24.55
PV:
Yr. 1 = 1.25/1.11
Yr. 2 = 1.56/(1.11)^2 + $27.30/(1.11)^2
= 1.12 + 1.27 + 22.16
TOTAL = 24.55

Palantir

^ Using the same calculation as above, I also got $24.55
Can someone explain why the last term (the constant term, after the two dividends) is squared and not cubed? I know that this is the way to solve it, I was just never certain WHY.

willsucceed

1.56*1.05/.06= 27.3/(1.11^2) + (1.25/1.11) + 1.56/(1.11^2)
=22.1573 + 1.126 + 1.2661
= 24.55

soverby

1.25/1.11+((1.56/(.11.05))/1.11^2) = 22.22