GBH Inc. pays no dividends. Instead, the company reinvests all of its earnings into maintaining fast...

 

 

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GBH Inc. pays no dividends. Instead, the company reinvests all of its earnings into maintaining fast growth. (Why?) Smart people, however, believe the company's growth will soon slow and it will pay a dividend in five years. (Think of this as at the end of the fifth year.) That dividend is expected to be about $5.00, and the company may follow its competitors and grow the dividend about 5.0% per year. If the required return of shareholders is 15.0%, what is a good estimate of the price the trust should pay today for this stock? Sketch the scenario in 5c in a timeline: TIME: CASH FLOW: 0 Po= D = g= Do = r = 1 2 3 4 5 $5.00 GBH Inc. pays no dividends. Instead, the company reinvests all of its earnings into maintaining fast growth. (Why?) Smart people, however, believe the company's growth will soon slow and it will pay a dividend in five years. (Think of this as at the end of the fifth year.) That dividend is expected to be about $5.00, and the company may follow its competitors and grow the dividend about 5.0% per year. If the required return of shareholders is 15.0%, what is a good estimate of the price the trust should pay today for this stock? Sketch the scenario in 5c in a timeline: TIME: CASH FLOW: 0 Po= D = g= Do = r = 1 2 3 4 5 $5.00

Answer rating: 100% (QA)

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