Use the rounded values of dividends

Assignment Help Financial Management

Reference no: EM131322271

Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?

Year 0 1 2 3 4 5 6

Growth rate NA NA NA NA 80% 40% 8.00%

Dividends $0.000 $0.000 $0.000 $0.90 $1.26 $1.36 $1.47

Use the rounded values of dividends (as given in the table above) for your subsequent calculations.

Select the correct answer.

A$28.57

B $28.69

C $28.58

D $28.68

E $28.61

Reference no: EM131322271

Questions Cloud

Different growth rates distort a comparative ratio analysis : How might (a) seasonal factors and (b) different growth rates distort a comparative ratio analysis? Give some examples. How might these problems be alleviated?

What is the firm horizon or continuing and value : Holt Enterprises recently paid a dividend, D0, of $2.25. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 5% thereafter. The firm's required return is 12%. What is the firm's horizon, or continuing, value?

Describe what tax considerations : Describe what tax considerations might cause you to set up a proprietorship or a partnership rather than a corporation when you start a business. Use a real business to explain your decision.

Which is more relevant pretax or the aftertax cost of debt : Jiminy’s Cricket Farm issued a bond with 30 years to maturity and a semiannual coupon rate of 8 percent 3 years ago. The bond currently sells for 93 percent of its face value. The company’s tax rate is 35 percent. What is the pretax cost of debt? Wha..

Use the rounded values of dividends : Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to..

What is this project equivalent annual cost or EAC : A five-year project has an initial fixed asset investment of $350,000, an initial NWC investment of $38,000, and an annual OCF of -$37,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..

What is the beta of portfolio : AJ owns a portfolio that has a value of $300,000 and consists of only 3 stocks. He has $60,000 worth of stock A, which has a beta of 1.25; he has 8,000 shares of stock B, which has a share price of $22.50 and a beta of -0.05; and he has some stock C,..

About the retail leases : In retail leases, the following is true. The rent quoted for office space is often not reflective of the rent actually being paid for the usable space. One of the factors that must be known in order to calculate the effective rent is

True for triple net lease : Which of the following is TRUE for a “triple net” lease? The acronym CAM, as it is used in a retail real estate lease, would refer to

User Account

All Pages