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Equilibrium value of a share of trevan

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1. Trevan currently pays no dividends, choosing instead to re-invest all earnings in the firm. However, the firm anticipates that beginning in year 6, they will run out of profitable investments and begin paying a dividend of $5.00 per share. They anticipate that dividends will grow at 2% per year in perpetuity following that.

The required return on the cash flows of Trevan's dividends is 15% per year.

a) What is the equilibrium value of a share of Trevan today?

Assuming that nothing about Trevan's cash flows, or its required return, changes, what should be the equilibrium value of a share of Trevan at t=5? At t=6?

Reference no: EM132664430

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