Question
This is an involved question. Not sure where to even begin and where to finish. It is expected that a software company will experience (beginning
This is an involved question. Not sure where to even begin and where to finish.
"It is expected that a software company will experience (beginning now) an unusually high growth rate (20 percent) during a 3-year period which it has exclusive rights to a patent.However, beginning with the fourth year the firm's competition will have access to the algorithm and from that time the software company will assume a normal growth rate of 8 percent annually.During the rapid growth period, the software company's dividend payout ratio will be relatively low (20 percent of earnings per share), to conserve funds for future R&D.However, during the constant growth phase the dividend payout will be increased to 50 percent.If the earnings per share last year, Eo, were $2.00 per share and the cost of equity is 10 percent, then what should be the current price of the software companies stock?"
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