Question: Ceebros Builders is expanding very fast and is expected to grow at a rate of 25 percent for the next four years. The company recently

Ceebros Builders is expanding very fast and is expected to grow at a rate of 25 percent for the next four years. The company recently paid a dividend of $3.60 but is not expected to pay any dividends for the next three years. In year 4, management expects to pay a $5 dividend and thereafter to increase the dividend at a constant rate of 6 percent. The required rate of return on such stocks is 20 percent.

a. Calculate the present value of the dividends during the fast-growth period.

b. What is the value of the stock at the end of the fast-growth period (P4)?

c. What is the value of the stock today?

d. Would today’s stock value be affected by the length of time you intend to hold the stock?


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