Kruger Associates is considering a substantial investment in the stock of McIntyre Enterprises. McIntyre currently (time 0) pays a dividend of $1.50 per share. This dividend is expected to grow at 15 percent per year for the next three years and 10 percent per year for the following three years. McIntyre's marginal tax rate is 40 percent. Kruger expects the value of the McIntyre stock to increase by 50 percent between now and the beginning of year 5. If Kruger requires a 12 percent rate of return on investments of this type, what value would Kruger place on the McIntyre stock?
Kruger Associates is considering a substantial investment in the stock of McIntyre Enterprises. McIntyre currently (time 0) pays a dividend of $1.50 per share. This dividend is expected to grow at 15 percent per year for the next three years and 10 percent per year for the following three years. McIntyre's marginal tax rate is 40 percent. Kruger expects the value of the McIntyre stock to increase by 50 percent between now and the beginning of year 5. If Kruger requires a 12 percent rate of return on investments of this type, what value would Kruger place on the McIntyre 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
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Transcribed Image Text:Kruger Associates is considering a substantial investment in the stock of McIntyre
Enterprises. McIntyre currently (time 0) pays a dividend of $1.50 per share. This dividend is
expected to grow at 15 percent per year for the next three years and 10 percent per year for
the following three years. McIntyre's marginal tax rate is 40 percent. Kruger expects the value
of the McIntyre stock to increase by 50 percent between now and the beginning of year 5. If
Kruger requires a 12 percent rate of return on investments of this type, what value would
Kruger place on the McIntyre stock?
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