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What is the maximum price an investor should pay

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Question - The Orbit Trading Company has had great success since first going public and issuing ordinary shares three years ago. Earnings and dividends have increased by 50% in each year and are expected to do so for two more years. Starting with the third year, growth is expected to fall to a more normal 6% which will continue for the foreseeable future.

During the year just completed, the company paid dividends of $1 per share. The required rate of return on Orbit Trading shares is 12%.

Required - Based on the information provided, what is the maximum price an investor should pay for shares in the company today? (Show all workings).

Reference no: EM132959046

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