What is the maximum price suzie should be willing to pay

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Reference no: EM131997283

Question: Mega Conglomerates is a successful company that has a long history of paying dividends to its shareholders twice a year - in the middle of October and in the middle of April. October's dividend has been paid and was $5.00 per share. Industry analysts believe that due to a number of recent takeovers of rival companies, Mega Conglomerates will become significantly more profitable and will be able to increase its dividends over the next three years at which time the dividends will level off.

Suzie Kilobucks thinks that Mega is going to be a good investment and she plans on keeping her shares for years at which time she will sell her shares for an estimated $125.00 per share. She agrees with industry analysts about the dividend growth. Specifically, she believes that each dividend will increase by 4% over the previous one for the next three years. She expects that for the fourth year and beyond the dividend payment will continue at the same level as the one at the end of the third year. She can invest in other opportunities of a similar risk to Mega at an annual effective rate of 10.25%.-What is the maximum price Suzie should be willing to pay for a share of Mega Conglomerates now (just after the October dividend has been paid)?

Reference no: EM131997283

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