What circumstances might company choose not to pay dividends

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AstraZenaca paid a dividend of $4.40 last year and does not expect any growth in the next year. The firm expects a 3.5% growth in years 2, 3 and 4, 17% growth in year 5 and then grows at a constant rate of 11% per year.

Problem 1) What is the maximum price per share that an investor who requires a return of 15% should pay for AstraZenaca's shares

Problem 2) Assume that the company expects to pay no dividends for the next 7 years. It has projected a growth rate of 22 per cent over the first8 years. After 8 years, the company will grow at a constant rate of 4.5 per cent. Its first dividend to be paid in year 8 will be worth $2.25. If the required rate of return is 26.5 per cent, what is the share worth today?

Problem 3) Discuss under what circumstances might a company choose not to pay dividends?

Reference no: EM132917457

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