Cup of Tea Inc. paid an annual dividend of $2.5 per share today. It is expecting to grow this dividend by 4% a year until a major newly developed product is finally launched and boosts the growth rate forever. This product is expected to be ready in three years’ time and the growth rate will be bumped up by 1.5%. The market is expecting a return of 6% from companies such as Cup of Tea Inc. Please estimate its fair market value per share.
Cup of Tea Inc. paid an annual dividend of $2.5 per share today. It is expecting to grow this dividend by 4% a year until a major newly developed product is finally launched and boosts the growth rate forever. This product is expected to be ready in three years’ time and the growth rate will be bumped up by 1.5%. The market is expecting a return of 6% from companies such as Cup of Tea Inc. Please estimate its fair market value per share.
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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Cup of Tea Inc. paid an annual dividend of $2.5 per share today. It is expecting to grow this dividend by 4% a year until a major newly developed product is finally launched and boosts the growth rate forever. This product is expected to be ready in three years’ time and the growth rate will be bumped up by 1.5%. The market is expecting a return of 6% from companies such as Cup of Tea Inc. Please estimate its fair market value per share.
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