The current earnings of Video Inc. are $2.00 a share, and it has just paid an annual dividend of 40 cents. You forecast that the company’s earnings and dividends will grow at the rate of 25% a year over the period. From year 5 on, you expect the subsequent growth rate to decline to 8%. The capitalization rate for the stock (i.e. discount rate) is 15%.
“Draw” the time line and show on it all cash flows (per share), which the owner of this stock expects to receive.
Calculate the price of this stock
Find the present value of growth opportunities [PVGO] per share of stock for Video Inc.