Nonconstant growth stock valuation

Reference no: EM13654399

Nonconstant Growth Stock Valuation

Simpkins Corporation is expanding rapidly, and it does not pay any dividends because it currently needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 45% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 5% per year. If the required return on the stock is 17%, what is the value of the stock today? Round your answer to the nearest cent. Do not round your intermediate computations.

Reference no: EM13654399

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