Reference no: EM132154658
This? year, Shoreline Light and Gas? (SL&G) paid its stockholders an annual dividend of ?$1.00 a share. A major brokerage firm recently put out a report on? SL&G predicting that the? company's annual dividends should grow at the rate of 10?% per year for each of the next five years and then level off and grow at the rate of 6?% a year thereafter. ?(Note?: Use four decimal places for all numbers in your intermediate? calculations.)
a. Use the? variable-growth DVM and a required rate of return of
12?% to find the maximum price you should be willing to pay for this stock.
b. Redo the? SL&G problem in part ?a, this time assuming that after year? 5, dividends stop growing altogether? (for year 6 and? beyond, g=0?). Use all the other information given to find the? stock's intrinsic value.
c. Contrast your two answers and comment on your findings. How important is growth to this valuation? model?
a. Using the? variable-growth DVM and a required rate of return of 12?%, the maximum price you should be willing to pay for the stock is ___?
b. The stick intrinsic value when there is no growth year after year 5 is___?