Metal Inc. has not issued a dividend. It is management's intention to do so beginning three years from today. The initial annual dividend is expected to be $3.00. Over the subsequent three years the annual dividends are expected to grow by 15% per year and then 10% per year for 4 years before slowing to a permanent growth rate of 3.5% per year. Determine the value (today) of the dividends that are the result of constant growth. Assume the cost of capital for Metal is 10% per year.
Metal Inc. has not issued a dividend. It is management's intention to do so beginning three years from today. The initial annual dividend is expected to be $3.00. Over the subsequent three years the annual dividends are expected to grow by 15% per year and then 10% per year for 4 years before slowing to a permanent growth rate of 3.5% per year. Determine the value (today) of the dividends that are the result of constant growth. Assume the cost of capital for Metal is 10% per year.
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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Transcribed Image Text:Metal Inc. has not issued a dividend. It is management's intention to do so
beginning three years from today. The initial annual dividend is expected to
be $3.00. Over the subsequent three years the annual dividends are
expected to grow by 15% per year and then 10% per year for 4 years before
slowing to a permanent growth rate of 3.5% per year. Determine the value
(today) of the dividends that are the result of constant growth. Assume the
cost of capital for Metal is 10% per year.
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