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, 3​% growth is​ expected, and in year​ 4, 16​% growth. In year 5 and​ thereafter, growth should be a constant 8​% per year. What is the maximum price per share that an investor who requires a return of 16​% 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
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 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,

3​%

growth is​ expected, and in year​ 4,

16​%

growth. In year 5 and​ thereafter, growth should be a constant

8​%

per year. What is the maximum price per share that an investor who requires a return of

16​%

should pay for Home Place Hotels common​ stock?

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