How much should you be willing to pay for the stock

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Question 1 - The Fijians holdings limited last dividend was $1.25 and the directors expect to maintain the historic 4 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 7 percent for the next three years and the stock will then reach $25.00 per share.

1. How much should you be willing to pay for the stock if you require a 16 percent return?

2. How much should you be willing to pay for the stock if you feel that the 7 percent growth rate can be maintained indefinitely and you require a 16 percent return?

Question 2 - Communications Fiji Limited just paid dividends of $2 per share .Assume that over the next three years dividends will grow as follows, 5% next year, 15% in year two, and 25% in year 3. After that growth is expected to level off constant growth rate of 10 % per year. The required rate of return is 15%. Calculate the intrinsic value using the multistage model.

Reference no: EM132565371

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