A high growth firm's stock is forecast to pay its first dividend of $12 in 3 years
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A high growth firm's stock is forecast to pay its first dividend of $12 in 3 years (t=3 yrs). The dividend will be paidsemi-annuallyand is forecast to grow at 4% every 6 months for 2 years (t=3 to t=5 yrs).After the last dividend inyear 5 (t=5 yrs), the firm's industry is likely to face strong competition from overseas and the dividend is actually forecast to shrink. After year 5, the dividend is thus expected to grow at a rate of-1% every 6 months, forever. The required return of the stock is 10.25% pa given as an effective annual rate (EAR). The growth rates are all given as effective 6-month rates. What is the best estimate of the share price?
Related Book For
Introduction to Operations Research
ISBN: 978-1259162985
10th edition
Authors: Frederick S. Hillier, Gerald J. Lieberman
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