Question
Decker Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay
Decker Consulting has been profitable for the last 5 years, but it 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 10.00%, what is your estimate of the stock's current value?
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Growth rate | NA | NA | NA | NA | 50.00% | 25.00% | 8.00% |
| Dividends | $0.000 | $0.000 | $0.000 | $0.250 | $0.375 | $0.469 | $0.506 |
| a. | $10.72 | |
| b. | $16.44 | |
| c. | $14.95 | |
| d. | $10.99 | |
| e. | $9.66 |
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
9781266566899
