Hayworth Industries does not currently pay dividends. However, investors expect that, in 4 years, Hayworth will...

Question

Question

Hayworth Industries does not currently pay dividends. However, investors expect that, in 4 years, Hayworth will pay its first dividend of

$ 2.08 per share and will continue to grow at 12%

per year forever. If investors require a 13%

annual return on the stock, what is the current price?

business finance

Answer 1

Answer #1

D4=2.08

Value after year 4=(D4*Growth Rate)/(Required rate-Growth Rate)

=(2.08*1.12)/(0.13-0.12)

=$232.96

Hence current price=Future dividends and value*Present value of discounting factor(rate%,time period)

=2.08/1.13^4+232.96/1.13^4

which is equal to

=$144.15(Approx).

Answer 2

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Hayworth Industries does not currently pay dividends.​ However, investors expect​ that, in 4​ years, Hayworth will...