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X Inc. is a new company and currently pays no dividends. The company has just reported earnings of $1.5 per share and its earnings are
X Inc. is a new company and currently pays no dividends. The company has just reported earnings of $1.5 per share and its earnings are expected to grow at a 15% annual rate over the next four years. Following this four-year high growth period earnings will grow at 5% per year forever. Starting at the end of Year 5, X Inc. will distribute 20% of the previous years earnings in the form of dividends. If the required rate of return is 10% (EAR), calculate the stock price of this company. Note: Dividend per share = Earnings per share * Payout ratio
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