You are evaluating an investment in an hotel. The hotel will need a 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that time, but when completed, it should allow the hotel to enjoy much improved growth in earnings and dividends. Last year, the hotel paid a dividend of $2. It expects zero growth in the next year. In years 2 and 3, 8% growth is expected, and in year 4, 16% growth. In year 5 and thereafter, growth should be a constant 8% per year. What is the maximum price per share of common stock you should pay for this hotel, assuming your required return of 16% ?

Answer rating: 100% (QA)

To calculate the maximum price per share of common stock that you should pay for the hotel we can us... View the full answer