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? Please be extremely descriptive on how you got the answer to this or no rating. I know the answer is $10.72 I just want to know how to get to that answer.
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Growth Rate | NA | NA | NA | NA | 50.00% | 25.00% | 8.00% |
| Dividends | $0.00 | $0.00 | $0.00 | $0.25 | $0.375 | $0.469 | $0.506 |
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1st Edition
