Marian Hotels, Inc., is entering into a 3-year remodelling 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 $5.00. It expects 3% growth in dividend in years 1, 2, and 3. In year 4 and thereafter, growth should be a constant 7% per year. 2 What is the maximum price per share that an investor who requires a return of 12% during the initial growth period (first 3 years) and a return of 10% during the final growth period should pay for Marian Hotels common stock?
Marian Hotels, Inc., is entering into a 3-year remodelling 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 $5.00. It expects 3% growth in dividend in years 1, 2, and 3. In year 4 and thereafter, growth should be a constant 7% per year. 2 What is the maximum price per share that an investor who requires a return of 12% during the initial growth period (first 3 years) and a return of 10% during the final growth period should pay for Marian 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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Marian Hotels, Inc., is entering into a 3-year remodelling 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 $5.00. It expects 3% growth in dividend in years 1, 2, and
3. In year 4 and thereafter, growth should be a constant 7% per year.
2
What is the maximum price per share that an investor who requires a return of 12% during the initial
growth period (first 3 years) and a return of 10% during the final growth period should pay for
Marian Hotels common stock?
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