Question
HSP Ltd. was founded 8 years ago. It has been profitable for the last 3 years, but it has needed all of its earnings to
HSP Ltd. was founded 8 years ago. It has been profitable for the last 3 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 $0.20 dividend 3 years from today, then to increase it at a relatively rapid rate for 3 years, and then to increase it at a constant rate of 7% thereafter. The forecast of the future dividend stream, along with the forecasted growth rates, is shown in the table below. With a required return of 8%, what is the stock price of HSP Ltd. one year from today?
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Growth rate | NA | NA | NA | NA | 100% | 75% | 50% | 7% |
| Dividend | $0.00 | $0.00 | $0.00 | $0.20 | $0.40 | $0.70 | $1.05 | $1.12 |
You must show all calculation steps, providing a final answer only will not get you full marks.
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Finance Theory And Practice
Authors: Anne Marie Ward
3rd Edition
1908199482, 978-1908199485
