Value a share of jeopardy stock as of today

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Jeopardy Inc. has earnings that have been growing at 30% per year. Next year's earnings are projected to be $0.35 per share. The managers at Jeopardy are aware that this growth will slow soon. In part, this awareness comes from the fact that investment opportunities are thinner than they once were.

Managers anticipate that after next year's earnings, earnings growth will slow to 20% per year for two years. A dividend payment will be initiated at this point (paid in year 3), and going forward from then it is expected that earnings growth will stabilize at 4% per year in perpetuity. Expected payout for the initial and on-going dividends is 60% (i.e. the % of earnings paid out as dividends is 60%).

Jeopardy's required return is 8% per year. Jeopardy is an all-equity company, and plans on staying that way.

Value a share of Jeopardy stock as of today.

Reference no: EM132342140

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