Question
Tinseltown Inc. has been profitable for the last 7 years, but it has needed all of its earnings to support growth and thus has never
Tinseltown Inc. has been profitable for the last 7 years, but it has needed all of its earnings to support growth and thus 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. All forecasts are 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
Growth rate NA NA NA NA 30.00% 15.00% 8.00%
Dividends $0.000 $0.000 $0.000 $0.250 $0.325 $0.374 $0.404
a. $10.75 b. $9.29 c. $8.60 d. $9.21 e. $10.50
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started