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Consider a high tech firm that pays no dividends today. Analysts’ reports suggest that the firm...

Consider a high tech firm that pays no dividends today. Analysts’ reports suggest that the firm will grow but needs to reinvest everything for the next 4 years so it will pay no dividends. Five years from now it is expected that the firm will start paying a dividend of $1 per share. The dividend per share is then expected increase at a rate of 25% a year for the next 14 years, (years 6 – 19), after which point growth is expected to slow and the dividend growth is expected to decline to a rate of only 4% per year thereafter into forever. If the opportunity cost of capital for the firm is 10%, determine a price for a share of this firm today in a normal market. Please show working.

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jeff jeffy answered 1 year ago
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