Stock Valuation: RMC pays constant $12 div. on stock

[barn]

I do not understand this at all, I don't what to do with the question. I have no idea what forumla to use??

Stock Valuation: Rocket Man Corp. pays a constant $12 dividend on its stock. The company will maintain this dividend for thr next eight years and then will cease paying dividends forever. If the required return on this stockis 10%, what is the current share price?

 

[tkhunny]

I have no idea what forumla to use??

Therein lies the problem, barn. Why are you trying to memorize formulas, and when to use them, instead of trying to understand what it is you are doing?

Isn't this a simply present value?

i = 0.1

v = 1/(1+i) = 1/1.1

PV = 12(v + v^2 + ... + v^8) = \(\displaystyle 12 \cdot \frac{v - v^{9}}{1-v}\) = \(\displaystyle 12 \cdot \frac{1 - v^{8}}{i}\)