Microsoft Word - HW set 7.docx

1. Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 30% a year for the next 5 years, then 15% every year from year 6 to year 10, and then a steady 3.5 % increase every year indefinitely. The company just paid its annual dividend in the amount of $0.5 per share. What is the current value of one share of this stock if the required rate of return is 15 percent? (Hint: you should calculate the expected dividends for year 1 to year 10, as well as the expected stock price at the end of year 10. Then find the present value of all future cash flows for the current stock price)

Done on Excel