Question 3/ Firm C is planning its first dividend in 4 years from now. Firm C...

 

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Question 3/ Firm C is planning its first dividend in 4 years from now. Firm C retention ratio is 65%. Firm C current net income is $2millions with 500,000 shares outstanding. The net income is expected to grow by 1% during the next 4 years. The dividends are expected to grow during year 5 by 11.5% and during year 6 by 9.5%. From year 6 to year 14 they is no expected growth in dividends. However starting from year 15 there will be a constant dividend growth rate of 5% forever. The required rate of return on the stocks is 8%. a/ Compute the intrinsic value of the stock now? (Show your steps) b/ Compute the intrinsic value of the stock at the end of year 2? (Show your steps) c/ Compute the intrinsic value of the stock at the end of year 8? (Show your steps) d/ Compute the intrinsic value of the stock at the end of year 14? (Show your steps) Question 3/ Firm C is planning its first dividend in 4 years from now. Firm C retention ratio is 65%. Firm C current net income is $2millions with 500,000 shares outstanding. The net income is expected to grow by 1% during the next 4 years. The dividends are expected to grow during year 5 by 11.5% and during year 6 by 9.5%. From year 6 to year 14 they is no expected growth in dividends. However starting from year 15 there will be a constant dividend growth rate of 5% forever. The required rate of return on the stocks is 8%. a/ Compute the intrinsic value of the stock now? (Show your steps) b/ Compute the intrinsic value of the stock at the end of year 2? (Show your steps) c/ Compute the intrinsic value of the stock at the end of year 8? (Show your steps) d/ Compute the intrinsic value of the stock at the end of year 14? (Show your steps)

Answer rating: 100% (QA)

Intrinsic Value of Firm C a Intrinsic Value Now Year 0 Calculate expected net income in year 4 Dividend initiation year Year 1 Net Income2 million 1 1 ... View the full answer