Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are considering investing in the company Husky Inc. The company just paid $2 dividends over the course of last year. The company is going

You are considering investing in the company Husky Inc. The company just paid $2 dividends over the course of last year. The company is going through a global expansion currently. You estimate that the company will pay annual dividends of $3, $4.5, $6.75, $10.125, and $15.1875 for the next 5 years. After that, the company will continue to pay annual dividends growing at a long-term, sustainable growth rate. You conducted extensive fundamental research into Husky Inc. and made the following predictions about the company's business 5 years from now. You believe the company will have a net profit margin of 60% and an asset turnover of 2%. In 5 years, Husky Inc. will be relatively mature and therefore the management of the company is comfortable with operating the company with a substantial amount of debt. You believe the company's debt will be three times its equity. Also, since the company is relatively mature, the management will pay 3/8 of its net income as dividends, as opposed to a dividend payout ratio of 1/4 currently. You believe the appropriate discount rate for Husky Inc. should be 10%. What is the fundamental price for Husky Inc.? Enter a number with 2 decimals, i.e., if the answer is $20, enter 20.00

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Introduction To Institutions Investments And Management

Authors: Ronald W. Melicher, Edgar A. Norton

11th Edition

0470004460, 978-0470004463

More Books

Students also viewed these Finance questions