Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings
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 80.00% 40.00% 8.00% Dividends $0.000 $0.000 $0.000 $0.250 $0.450 $0.630 $0.680
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To estimate the stocks current value we can use the dividend discount model DDM and calculate the pr...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started