Apex Financial Ltd. has completed a fundamental analysis of Spark Energy Inc. Spark Energy is a young company and expects to invest heavily in facilities and research and development during the next five years. It expects to reap the benefits of its research and development during years 6 to 10. However, it expects rivals to enter the market and margins and profitability to stabilize at a lower level after year 10. The details of the analysis are presented below:

The current dividend for Spark Energy is $3.00 and the required rate of return for this type of firm is 15 percent. Determine the current stock price for SparkEnergy.

Transcribed Image Text:

Period Net profit margin 1% 15% 5% Turnover Leverage Years 1-5 Years 6-10 Years 11-? 0.75 3.00 1.40 3.0 2.0 1.0 Dividend payout ratio 0.05 0.10 0.50