Johnson Ltd. has developed new technology that has given if a competitive advantage over its competitors....
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Johnson Ltd. has developed new technology that has given if a competitive advantage over its competitors. This, it expects will increase its profitability until its-rivals can develop their own technological answers. The firm thinks that its advantage will last for three years, and estimates that its growth in profits and dividends will be 12% for the first year, 11% for the second and 9% the third year, before decreasing to a constant 5% starting in the fourth year. Cost of capital is expected to be 15%, and its last dividend was $1.65. (1) What is the stock's terminal value? (ii) What is the current share price (Po)? (iii) What is the expected share price for the year (P₂)? (5 marks) (8 marks) (6 marks) Johnson Ltd. has developed new technology that has given if a competitive advantage over its competitors. This, it expects will increase its profitability until its-rivals can develop their own technological answers. The firm thinks that its advantage will last for three years, and estimates that its growth in profits and dividends will be 12% for the first year, 11% for the second and 9% the third year, before decreasing to a constant 5% starting in the fourth year. Cost of capital is expected to be 15%, and its last dividend was $1.65. (1) What is the stock's terminal value? (ii) What is the current share price (Po)? (iii) What is the expected share price for the year (P₂)? (5 marks) (8 marks) (6 marks)
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SOLUTION 1 Terminal Value Dividend in Year 3 1 gk g 165 1 00... View the full answer
Related Book For
Essentials Of Modern Business Statistics With Microsoft Excel
ISBN: 9780357131626
8th Edition
Authors: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Posted Date:
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