Delay Corp. expects earnings per share of $5 one year from today. For each of the next four years, Delay plans to pay out 20% of its earnings and reinvest 80% of its earnings in projects earning 25%. Beginning five years from today (and every year thereafter), the return on Delay’s projects will fall to 5% and the firm plans to pay out 85% of its earnings. Set up the calculations needed to determine the price per share of Delay’s stock if its equity cost of capital equals 10%.

Answer rating: 100% (QA)

To calculate the price per share of Delays stock we can use the dividend discount model which values a stock based on the present value of its future ... View the full answer