Calculate the firm non-constant dividends

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Question - 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%, what is your estimate of the stock's intrinsic value today?

a) Calculate the firm's non-constant dividends.

b) Calculate the firm's horizon value.

c) What is the firm's intrinsic value today?

Reference no: EM132563160

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