Question
(12) Next year Dillon Mechanical Incs EPS is expected to be $4. The firm is not expected to pay any dividends for the next four
(12) Next year Dillon Mechanical Incs EPS is expected to be $4. The firm is not expected to pay any dividends for the next four years. In year 5, a dividend of $1.5 is expected and subsequent dividends are expected to grow at 5 percent per year., The next years EPS of another firm, Sterling Inc., is expected to be $6. Sterling has just paid a dividend of $6 ( cheques were mailed out today).
Its dividends are expected to grow at 2 percent per year. Assume that the cost of capital for both firms is 15 percent.
a. What should be the current share price of Dillion Mechanical Inc.?
b. What should be the current share price of Sterling Inc.
c. What is the PVGO of Dallion Mechanical?
d. What is the PVGO of Sterling?
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