Calculation of stocks current value


Question1: Agarwal Technologies was founded ten years ago. It has been profitable for the last five years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend three years from today, then to increase it at a relatively rapid rate for two years, and then to increase it at a constant rate of 8.00 percent thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Suppose a required return of 11.00 percent, Calculate the stock's current value?

 

0

1

2

3

4

5

6

Growth rate

NA

NA

NA

NA

50%

25%

8%

Dividends

$0.000

$0.000

$0.000

$0.250

$0.375

$0.469

$0.506

[A] $9.94

[B] $10.45

[C] $10.72

[D] $10.99

[E] $10.19

 

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Finance Basics: Calculation of stocks current value
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