Question
In: Finance
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years,...
Agarwal Technologies was founded 10 years ago. It has been
profitable for the last 5 years, but it has needed all of its
earnings to support growth and thus has never paid a dividend.
Management has indicated that it plans to pay a $0.25 dividend 3
years from today, then to increase it at a relatively rapid rate
for 2 years, and then to increase it at a constant rate of 8.00%
thereafter. Management's forecast of the future dividend stream,
along with the forecasted growth rates, is shown below. Assuming a
required return of 11.00%, what is your estimate of the stock's
current value?
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Growth rate | NA | NA | NA | NA | 30.00% | 15.00% | 8.00% |
| Dividends | $0.000 | $0.000 | $0.000 | $0.250 | $0.325 | $0.374 |
$0.404 |
Solutions
Expert Solution
| rate | 11.0000% | |
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year |
| - | 0 | - |
| - | 1 | - |
| - | 2 | - |
| 0.250 | 3 | 0.18 |
| 0.325 | 4 | 0.21 |
| 0.374 | 5 | 0.22 |
| 13.464 | 5 | 7.99 |
the terminal value = 0.374*1.08/(0.11 - 0.08) = 13.464
total stock value = sum of column 3 = 8.61
jeff jeffy answered 2 years agoRelated Solutions
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years,...
Agarwal Technologies was founded 10 years ago. It has been
profitable for the last 5 years, but it has needed all of its
earnings to support growth and thus has never paid a dividend.
Management has indicated that it plans to pay a $0.25 dividend 3
years from today, then to increase it at a relatively rapid rate
for 2 years, and then to increase it at a constant rate of 8.00%
thereafter. Management's forecast of the future dividend stream,...
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years,...
Agarwal Technologies was founded 10 years ago. It has been
profitable for the last 5 years, but it has needed all of its
earnings to support growth and thus has never paid a dividend.
Management has indicated that it plans to pay a $0.25 dividend 3
years from today, then to increase it at a relatively rapid rate
for 2 years, and then to increase it at a constant rate of 8.00%
thereafter. Management's forecast of the future dividend stream,...
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years,...
Agarwal Technologies was founded 10 years ago. It has been
profitable for the last 5 years, but it has needed all of its
earnings to support growth and thus has never paid a dividend.
Management has indicated that it plans to pay a $0.25 dividend 3
years from today, then to increase it at a relatively rapid rate
for 2 years, and then to increase it at a constant rate of 8.00%
thereafter. Management's forecast of the future dividend stream,...
Q1. Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5...
Q1.
Agarwal Technologies was founded 10 years ago. It has been
profitable for the last 5 years, but it has needed all of its
earnings to support growth and thus has never paid a dividend.
Management has indicated that it plans to pay a $0.25 dividend 3
years from today, then to increase it at a relatively rapid rate
for 2 years, and then to increase it at a constant rate of 8.00%
thereafter. Management's forecast of the future dividend...
XYZ was founded 10 years ago. It has been profitable for the last 5 years, but...
XYZ was founded 10 years ago. It has been profitable for the
last 5 years, but it has needed all of its earnings to support
growth and thus has never paid a dividend. Management has indicated
that it plans to pay a $1 dividend 3 years from today, then to
increase it at a relatively rapid rate of 20% for 3 years, and then
to increase it at a constant rate of 8% thereafter.
Assuming a required return of 12%,...
Flash Inc. was founded 5 years ago. It has been profitable for the last 2 years,...
Flash Inc. was founded 5 years ago. It has been profitable for
the last 2 years, but it has needed all of its earnings to support
growth and thus has never paid a dividend. Management has indicated
that it plans to pay a $1 dividend starting one year from today,
then it will increase the dividend growth by 50% for the next two
years, and then the company will achieve a long run growth rate of
6%. Assuming a required...
Question 4 Flash Inc. was founded 5 years ago. It has been profitable for the last...
Question 4 Flash Inc. was founded 5 years ago. It has been
profitable for the last 2 years, but it has needed all of its
earnings to support growth and thus has never paid a dividend.
Management has indicated that it plans to pay a $1 dividend
starting from today, then it will increase the dividend growth by
50% for the next two years, and then the company will achieve a
long run growth rate of 7.5%. Assuming a required...
Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a...
Sawchuck Consulting has been profitable for the last 5 years,
but it has never paid a dividend. Management has indicated that it
plans to pay a $0.25 dividend 3 years from today, then to increase
it at a relatively rapid rate for 2 years, and then to increase it
at a constant rate of 8.00% thereafter. Management's forecast of
the future dividend stream, along with the forecasted growth rates,
is shown below. Assuming a required return of 11.00%, what is...
M&T Air was founded 10 years ago. The company has manufactured and sold light airplanes over...
M&T Air was founded 10 years ago. The company has
manufactured and sold light airplanes over this period, and the
company’s products have received high reviews for safety and
reliability. The company has a niche market in that it sells
primarily to individuals who own and fly their own airplanes. The
company has two models: The Birdie, which sells for $53,000, and
the Eagle, which sells for $78,000. S&S Air is not publicly
traded, but the company needs new funds...
S&S Air was founded 10 years ago. The company has manufactured and sold light airplanes over...
S&S Air was founded 10 years ago. The company has
manufactured and sold light airplanes over this period, and the
company’s products have received high reviews for safety and
reliability. The company has a niche market in that it sells
primarily to individuals who own and fly their own airplanes. The
company has two models: The Birdie, which sells for $53,000, and
the Eagle, which sells for $78,000. S&S Air is not publicly
traded, but the company needs new funds...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- You are tasked with assessing the health department’s intervention program in preventing recurrence of acute alcohol...
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
- Explain the use of neural networking modeling in predictive analytics.
- Current Market Mix of Netflix, as detail as possible, please.
- This is all one question, thank you so much in advance! You must evaluate a proposal...
- X Company is considering the purchase of a new processor that costs $200,000. Shipping and setup...
ADVERTISEMENT