Calculate the expected share price today

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Question - a) A Portland-based company that recently listed on the Jamaica Stock Exchange has some exciting prospects over the next three years. Their most recent dividend was $5.27, and it is expected that profits and dividends will grow by 29% in the first year, 19% in the second year and 9% in the third year after which the long-term dividend growth rate is expected to be 4.4%. Their cost of capital is 27%.

Required -

i) Calculate the expected share price today (P0).

ii) Calculate the expected share price one year from today (P1).

iii) Calculate the expected share price two years from today (P2).

b) Your friends are undecided about whether they should be investing in preferred stock or common stock. They would like to have a guaranteed say in the decisions made by the company and they would enjoy the predictability of having a fixed dividend amount. Which of these two investment alternatives will allow them to achieve both goals? Explain.

Reference no: EM133168193

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