How much would expect each share to sell for today

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Company A is growing quickly, with current annual increases of 15% per year in both sales and net income. To fund its growth, it is reinvesting all of its net income each year in new productive opportunities (payout ratio = 0). Yesterday, the firm reported net income of $3.00 per share. This growth is expected to last for another five years (to the end of year 5 on the timeline), at which time they will have exploited most of the available high growth opportunities. The growth rate in net income will then fall to 7% and the firm will adopt a payout ratio of 50% with the first dividend paid at time period 6.

Problem 1: If shareholders require a 17% return to hold the firm's shares, how much would you expect each share to sell for today?

Multiple Choice

Option 1: $11.12
Option 2: $16.32
Option 3: $15.28
Option 4: $14.72

Reference no: EM132964977

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