A California-based company that recently listed on the US Stock Exchange has some exciting prospects over...

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A California-based company that recently listed on the US Stock Exchange has some exciting prospects over the next three years. Their most recent dividend was $5.27, and it is expected that profits and dividends will grow by 29% in the first year, 19% in the second year and 9% in the third year after which the long-term dividend growth rate is expected to be 4.4%. Their cost of capital is 27%. i.) ii.) Calculate the expected share price today (PO). (9 Marks) Calculate the expected share price one year from today (P1). (6 Marks) Calculate the expected share price two years from today (P2). (4 Marks) A California-based company that recently listed on the US Stock Exchange has some exciting prospects over the next three years. Their most recent dividend was $5.27, and it is expected that profits and dividends will grow by 29% in the first year, 19% in the second year and 9% in the third year after which the long-term dividend growth rate is expected to be 4.4%. Their cost of capital is 27%. i.) ii.) Calculate the expected share price today (PO). (9 Marks) Calculate the expected share price one year from today (P1). (6 Marks) Calculate the expected share price two years from today (P2). (4 Marks)

Answer rating: 100% (QA)

To calculate the expected share price we will use the Dividend Discount Model DDM which states that the present value of a stock is equal to the sum o... View the full answer