Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the...

Extracted text: Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: PO = D1/(r - g). Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. Such a stock should have a value of zero until it actually begins paying dividends. The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount.