Company XYZ does not currently pay a dividend. However, their earnings have been growing at a very high rate. Thus, they are expected to begin paying a dividend, starting 7 years from today. Expectations are that the first dividend will be $ 2.6 per share. The dividend is then expected to grow at 32 % per year for 6 years, and at the end of that super-normal growth period, the stock will enter a slower growth perpetuity phase of 9 % per year. The required return on Agilent stock is 13 %. What should be their current stock price? (Please make sure to not do any intermediate rounding and keep at least 6 decimal points throughout solving this problem. Round your final answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)
Company XYZ does not currently pay a dividend. However, their earnings have been growing at a very high rate. Thus, they are expected to begin paying a dividend, starting 7 years from today. Expectations are that the first dividend will be $ 2.6 per share. The dividend is then expected to grow at 32 % per year for 6 years, and at the end of that super-normal growth period, the stock will enter a slower growth perpetuity phase of 9 % per year. The required return on Agilent stock is 13 %. What should be their current stock price? (Please make sure to not do any intermediate rounding and keep at least 6 decimal points throughout solving this problem. Round your final answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 25P
Question
![Company XYZ does not currently pay a dividend. However, their earnings have been
growing at a very high rate. Thus, they are expected to begin paying a dividend,
starting 7 years from today. Expectations are that the first dividend will be $ 2.6 per
share. The dividend is then expected to grow at 32 % per year for 6 years, and at the
end of that super-normal growth period, the stock will enter a slower growth
perpetuity phase of 9 % per year. The required return on Agilent stock is 13 %. What
should be their current stock price? (Please make sure to not do any intermediate
rounding and keep at least 6 decimal points throughout solving this problem. Round
your final answer to three decimal places. For example 1.23450 or 1.23463 will be
rounded to 1.235 while 1.23448 will be rounded to 1.234)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F083ab2a4-4a41-4458-a213-dd9ba7361304%2F5c2e74be-be7b-400a-a250-07e86e65e3a0%2F7czxs2e_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Company XYZ does not currently pay a dividend. However, their earnings have been
growing at a very high rate. Thus, they are expected to begin paying a dividend,
starting 7 years from today. Expectations are that the first dividend will be $ 2.6 per
share. The dividend is then expected to grow at 32 % per year for 6 years, and at the
end of that super-normal growth period, the stock will enter a slower growth
perpetuity phase of 9 % per year. The required return on Agilent stock is 13 %. What
should be their current stock price? (Please make sure to not do any intermediate
rounding and keep at least 6 decimal points throughout solving this problem. Round
your final answer to three decimal places. For example 1.23450 or 1.23463 will be
rounded to 1.235 while 1.23448 will be rounded to 1.234)
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