Question
Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay
Sawchuck 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 11.00%, what is your estimate of the stock's current value?
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Growth rate | NA | NA | NA | NA | 70% | 35% | 8.00% | 8.00% |
| Dividends | $0.000 | $0.000 | $0.000 | $0.25 | $0.43 | $0.58 | $0.63 | $0.68 |
Use the rounded values of dividends (as given in the table above) for your subsequent calculations.
Select the correct answer.
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Restaurant Financial Management
Authors: Hyung-il Jung
1st Edition
1774631431, 978-1774631430
