a.) CellU, the company CompU is looking at purchasing, expected their dividend to grow at a rate
Question:
a.) CellU, the company CompU is looking at purchasing, expected their dividend to grow at a rate of 35 percent for the next four years, then to drop to a growth rate of 15 percent for 2 more years, and then settle down to a 10 percent growth rate thereafter. CellU just paid a dividend of $2.50. Investors required rate of return is 12 percent. What would CompU be willing to pay for CellUs stock?
b.) Instead of common stock, CompU is also looking at issuing preferred stock so Bill Jobs can retain close ownership in the company. The preferred stock has a par value of $50 and will pay a 5% dividend per year. If the required return for investors is 8%, what is the value of the preferred stock?
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates