Question
2. 5. You are evluationg an invesement in an hotel. The hotel will need a 3-year remodeling and expansion project. The construction will have a
2. 5. You are evluationg an invesement in an hotel. The hotel will need a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when completed, it should allow the hotel to enjoy much improved growth in earnings and dividends. Last year, the hotel paid a dividend of $12. It expects zero growth in the next year. In years 2 and 3, 18% growth is expected, and in year 4, 12% growth. In year 5 and thereafter, growth should be a constant 12% per year. What is the maximum price per share of common stock you should pay for this hotel, assuming your required return of 18% ?
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