Question: Uber is considering going public with an IPO. You work for the Texas Employees Retirement System, and one of Ubers bankers calls you to ask
Uber is considering going public with an IPO. You work for the Texas Employees Retirement System, and one of Ubers bankers calls you to ask how much youd be willing to pay for a share of Uber if it sells shares through an IPO. If Uber goes public, it will pay a dividend of $1 per share at the end of its first year. You expect Uber to continue growing rapidly for the next 5 years; in particular, you expect their annual dividend to grow by 10% up until year 5. After year 5, however, Uber will slow down to a steady 3% growth rate in dividends forever. How much are you willing to pay for a share of Uber if its discount rate is 20%? Show all your steps.
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