Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but
Question:
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value? Use the dividend values provided in the table below for your calculations. Do not round your intermediate calculations.
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Growth rate | NA | NA | NA | NA | 90.00% | 45.00% | 8.00% |
| Dividends | $0.000 | $0.000 | $0.000 | $0.250 | $0.475 | $0.689 | $0.744 |
Question 15 options:
$15.62 | |
$17.18 | |
$11.87 | |
$12.97 | |
$14.22 |
Expert Answer:
Fundamentals of Financial Management
ISBN: 9780273713630
13th Revised edition
Authors: James van Horne, John Wachowicz
