Blossom Infotech is a fast-growing communications company. The company did not pay a dividend last year and is not expected to do so for the next two years. Last year the company’s growth accelerated, and management expects to grow the business at a rate of 40 percent for the next five years before growth slows to a more stable rate of 7 percent. In the third year, management has forecasted a dividend payment of $1.40. Dividends will grow with the company thereafter. (a1) Your answer is correct. Calculate the value of the company’s stock at the end of its rapid growth period (i.e., at the end of five years). The required rate of return for such stocks is 17 percent. (Round intermediate calculations to 3 decimal places, e.g. 15.257 and final answer to 2 decimal places, e.g. 15.25) Value of stock $29.36 (a2) What is the current value of this stock? (Round intermediate calculations to 3 decimal places, e.g. 15.257 and final answer to 2 decimal places, e.g. 15.25) Current value of stock
Blossom Infotech is a fast-growing communications company. The company did not pay a dividend last year and is not expected to do so for the next two years. Last year the company’s growth accelerated, and management expects to grow the business at a rate of 40 percent for the next five years before growth slows to a more stable rate of 7 percent. In the third year, management has forecasted a dividend payment of $1.40. Dividends will grow with the company thereafter. (a1) Your answer is correct. Calculate the value of the company’s stock at the end of its rapid growth period (i.e., at the end of five years). The required rate of return for such stocks is 17 percent. (Round intermediate calculations to 3 decimal places, e.g. 15.257 and final answer to 2 decimal places, e.g. 15.25) Value of stock $29.36 (a2) What is the current value of this stock? (Round intermediate calculations to 3 decimal places, e.g. 15.257 and final answer to 2 decimal places, e.g. 15.25) Current value of stock
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please help with a2!
Blossom Infotech is a fast-growing communications company. The company did not pay a dividend last year and is not expected to do so for the next two years. Last year the company’s growth accelerated, and management expects to grow the business at a rate of 40 percent for the next five years before growth slows to a more stable rate of 7 percent. In the third year, management has forecasted a dividend payment of $1.40. Dividends will grow with the company thereafter.
(a1)
Your answer is correct.
Calculate the value of the company’s stock at the end of its rapid growth period (i.e., at the end of five years). The required
| Value of stock | $29.36 |
(a2)
What is the current value of this stock? (Round intermediate calculations to 3 decimal places, e.g. 15.257 and final answer to 2 decimal places, e.g. 15.25)
| Current value of stock |
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