The Blinkelman Corporation has just announced that it plans to

The Blinkelman Corporation has just announced that it plans to introduce a new solar panel that will greatly reduce the cost of solar energy. As a result, analysts now expect the company’s earnings, currently (year 0) $1 per share to grow by 50 percent per year for the next three years, by 25 percent per year for the following three years, and by 8 percent per year, thereafter. Blinkelman does not currently pay a dividend, but it expects to pay out 20 percent of its earnings beginning two years from now. The payout ratio is expected to become 50 percent in five years and to remain at that level. The company’s marginal tax rate is 40 percent. If you require a 20 percent rate of return on a stock such as this, how much would you be willing to pay for it today? 23. Watkins, Inc., has experienced an explosion in demand for its ram football novelties. The firm currently (time 0) pays a dividend of $0.50 per share. This dividend is expected to increase to $1.00 per share one year from now. It is expected to grow at a rate of 20 percent per year for the next seven years. Susan seeks your advice regarding the current value of this stock. Susan plans to purchase this stock today, if the price is right, and to hold it for three years. She believes that the stock will increase in value to $40 at the end of five years. What is the current value of this stock to Susan if she requires a 20 percent rate of return on stocks of this risk level?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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