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I would like help with solving a supernormal calculation/valuation and dividend growth rates. Company X is expanding rapidly, and it currently needs to retain all
I would like help with solving a supernormal calculation/valuation and dividend growth rates.
Company X is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Company X to begin paying dividends, with the first dividend D2coming 2 years from today. The dividend should grow rapidly--at a rate of g3,4 per year--during years 3 and 4. After year 4, the company should grow at a constant rate of g per year. If the required return on the stock is rs, what is the value of the stock today (P0)? |
Input Data | D2 $1.81 | g3,4 25% | g 3.50% |
rs 14% | |||
P0 | =? |
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