Question
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value? Use the dividend values provided in the table below for your calculations. Do not round your intermediate calculations.
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Growth rate | NA | NA | NA | NA | 60.00% | 30.00% | 8.00% |
| Dividends | $0.000 | $0.000 | $0.000 | $0.250 | $0.400 | $0.520 | $0.562 |
What is the value of the constant growth portion at t=5?
What is the PV of each of the dividends?
What is the PV of the constant growth portion?
What is the estimate of the stock's current value?
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Intermediate Accounting 2014 FASB Update
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
15th edition
978-1118938782, 111893878X, 978-1118985311, 1118985311, 978-1118562185, 1118562186, 978-1118147290
