Nonconstant Dividend Growth Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly at a rate of 80% per year during Years 4 and 5. After Year 5, the company should grow at a constant rate of 7% per year. If the required return on the stock is 14%, what is the value of the stock today? (Assume the market is in equilibrium with the required return equal to the expected return.) Do not round intermediate calculations. Round your answer to the nearest cent $
Nonconstant Dividend Growth Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly at a rate of 80% per year during Years 4 and 5. After Year 5, the company should grow at a constant rate of 7% per year. If the required return on the stock is 14%, what is the value of the stock today? (Assume the market is in equilibrium with the required return equal to the expected return.) Do not round intermediate calculations. Round your answer to the nearest cent $
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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Nonconstant Dividend Growth Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Sumplons to begin payng dividends, with the first dividend of$1.00coming 3 years from today. The dividend should grow rivpidy - at a rate of80%per year - during Years 4 and 5 . After Year 5 , the company should grow at a constank rate of7%per year. If the required return on the stock is14%, what is the value of the stock today? (Assume the market is in equilibrium with the required return equal to the expecied retum.) Do not round intermediate calculations; Round your answer to the nearest cent.
Transcribed Image Text:Nonconstant Dividend Growth Valuation
Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying
dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 80% per year during Years 4 and 5. After Year 5, the
company should grow at a constant rate of 7% per year. If the required return on the stock is 14%, what is the value of the stock today? (Assume the market is in
equilibrium with the required return equal to the expected return.) Do not round intermediate calculations. Round your answer to the nearest cent
$
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