Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You find the following data about Pineapple Inc. in the financial press. The Companys common stock is selling at $30.00 per share. The Company just
You find the following data about Pineapple Inc. in the financial press.
- The Companys common stock is selling at $30.00 per share.
- The Company just paid a dividend of $3.00 per common share.
- The Company pays annual dividends.
- The Companys retention ratio has been stable and 30%.
- The Companys ROE has historically been 30%.
- The Companys beta is 2.5.
Assumptions
- The growth rate for the Companys dividend will be 10% per year for the next two years
- The dividend growth rate after the initial 2 years will be at the sustainable growth rate.
- At the end of year 2 you anticipate that the Company will pay a special dividend of $0.70 per common share. This dividend is paid only once and is in addition to the regular stream of dividends.
- What is the intrinsic value of the stock?
- What long-term growth rate does the market expect from the company? Assume the required rate of return you calculated in part a) is the correct value to use for this calculation.
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