Question
Question 5. It is January 1st, 2019 and you are thinking about buying some Warm Inc. stocks. Last years earnings per share (EPS) was $3
Question 5. It is January 1st, 2019 and you are thinking about buying some Warm Inc. stocks. Last years earnings per share (EPS) was $3 and the company did not pay any dividend. Earnings are expected to grow at 14% for the next six years (2019 to 2024). The company will pay its first dividend in December 2024, and the dividend will be 50% of its earnings that year. The dividend afterward is expected to grow at a constant rate of 6% per year in perpetuity. If the cost of equity is 10%, how much should you be willing to pay for a share today using the dividend discount model?
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