Question

ebook Problem Walk Through Nonconstant Growth Stock Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly - at a rate of 80% per year during Years 4 and 5. After Year 5, the company should grow at a constant rate of 5% per year. If the required return on the stock is 16%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

B102 - X A 96 97 D1 98 D2 99 D3 100 D4 101 D5 102 D6 103 Stock price in 5 years 104 ✓ fix =+B101*1.05 B C D PVIF @ 16% Present value 0.862 $ 0.743 $ $ 1.00 0.641 $ 0.64 $ 1.80 0.552 $ 0.99 3.24 0.476 $ 1.54 $ $ 3.40 30.93 0.476 $ 14.72 3.40/(16%-5%) 105 Value of the stock today $ 17.90

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