Analysts project that the Dutton Corporation will end the year with an EPS of $1.00. The firm
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Analysts project that the Dutton Corporation will end the year with an EPS of $1.00. The firm is expected to have two periods of high growth before it slides into a stable terminal growth rate as outlined in the table below. Initially, the firm retains a high percentage of earnings, as noted by the plowback ratio, but then declines in two steps to a steady state value. Using a multi stage growth model and a required rate
of return of 13%, what is the value of a share of this company's stock?
Duration Growth Plowback Phase in years Rate Ratio |
1- 5 16% 70% 2- 4 11% 55% 3- Perpetual 4% 40% |
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