Suppose that sales and profits of Oly Enterprises are growing at a rate of 30% per year.

Question:

Suppose that sales and profits of Oly Enterprises are growing at a rate of 30% per year. At the end of 4 years (t4) the growth rate will drop to a steady 5%. Oly recently paid a dividend of $1 per share. If the required return is 20%, what is the value of one Oly share today (t0)?

(Assume dividends grow at the same rate as earnings after year 4.)

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...