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What price should goodcoffee inc. set for its new stock

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Question: The fast-growing firm of GoodCoffee Inc. is planning its first issue of public stock. The firm will pay out its first dividend of $1 one year from today. Analysts expect annual dividends to grow at a rate of 12% per year for each of the following two years (year 2 and year 3). After that, the dividends will grow at a constant rate of 7% indefinitely. Investors require a 10% return from holding GoodCoffee stock.

  1. What price should GoodCoffee Inc. set for its new stock?
  2. What is the stock price at the end of year 3 (after paying out D1, D2 and D3)? Assume no change in the future dividend forecasts or the discount rate.

 

Reference no: EM133331667

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