Estimate the value of stable growth

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Dividend H Model

Oneida Inc, the world's largest producer of stainless steel and silverplated flatware, reported earnings per share of $0.80 in 1993, and paid dividends per share of $0.48 in that year. The firm was expected to report earnings growth of 25% in 1994, after which the growth rate was expected to decline linearly over the following six years to 7% in 1999. The stock was expected to have a beta of 0.85. (The Treasury bond rate is 6.25%, and the risk premium is 5.5%.)

a. Estimate the value of stable growth, using the H model.

b. Estimate the value of extraordinary growth, using the H model.

c. What are the assumptions about dividend payout in the H model?

Reference no: EM133123803

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