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?
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Growth rate | NA | NA | NA | NA | 65.00% | 32.50% | 8.00% |
| Dividends | $0.000 | $0.000 | $0.000 | $0.250 | $0.413 | $0.547 | $0.590 |
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Advances In Accounting Education Teaching And Curriculum Innovations Volume 23
Authors: Thomas G. Calderon
1st Edition
1789733944, 978-1789733945
