Expanding rapidly and currently needs to retain

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Reference no: EM131896581

AAA Company is expanding rapidly and currently needs to retain all of its earnings; hence it does not pay dividends in Year 1. However, investors expect AAA to begin paying dividends, beginning with a dividend of $0.50 in Year 2. The dividend should grow rapidly at a rate of 30% per year-during Years 3 and 4; but after Year 4, growth should be a constant 5% per year. If the required return on AAA is 10% what is the value of the stock today?

Reference no: EM131896581

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