Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a P0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value? Year 0 1 2 3 4 5 6 Growth rate NA NA NA NA 50.00% 25.00% 8.00% Dividends P0.000 P0.000 P0.000 P0.250 P0.375 P0.469 P0.506 P10.99 P10.45 P 9.94 P10.19 P10.72

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend.  Management has indicated that it plans to pay a P0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter.  Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below.  Assuming a required return of 11.00%, what is your estimate of the stock's current value?

 

   Year             0      1      2      3      4            5            6         

Growth rate  NA   NA   NA   NA   50.00% 25.00% 8.00%

Dividends    P0.000 P0.000 P0.000 P0.250 P0.375 P0.469 P0.506

 

P10.99

P10.45

P 9.94

P10.19

P10.72

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