Common stock value-Variable growth Personal Finance Problem Home Place Hotels, Inc., is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of $4.80. It expects zero growth in the next year. In years 2 and 3, 5% growth is expected, and in year 4, 21% growth. In year 5 and thereafter, growth should be a constant 9% per year. What is the maximum price per share that an investor who requires a return of 17% should pay for Home Place Hotels common stock?
Common stock value-Variable growth Personal Finance Problem Home Place Hotels, Inc., is entering into a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when it is complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last year, the company paid a dividend of $4.80. It expects zero growth in the next year. In years 2 and 3, 5% growth is expected, and in year 4, 21% growth. In year 5 and thereafter, growth should be a constant 9% per year. What is the maximum price per share that an investor who requires a return of 17% should pay for Home Place Hotels common stock?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Common stock value-Variable growth Personal Finance Problem Home Place
Hotels, Inc., is entering into a 3-year remodeling and expansion project. The
construction will have a limiting effect on earnings during that time, but when it is
complete, it should allow the company to enjoy much improved growth in earnings and
dividends. Last year, the company paid a dividend of $4.80. It expects zero growth in
the next year. In years 2 and 3, 5% growth is expected, and in year 4, 21% growth. In
year 5 and thereafter, growth should be a constant 9% per year. What is the maximum
price per share that an investor who requires a return of 17% should pay for Home
Place Hotels common stock?
***
The maximum price per share that an investor who requires a return of 17% should pay
for Home Place Hotels common stock is $ (Round to the nearest cent.)
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