What value would project for a share of stock

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Highland Pet Supplies Company forecasts earnings per share of $1.50 during the coming year. Highland has always paid a dividend equal to 30 percent of its earnings, and it anticipates continuing this practice. Earnings are expected to increase at a rate of 20 percent per year in years 2 and 3, 16 percent in year 4, and 9 percent per year thereafter. The beta of Highland stock is 1.5, the risk-free rate is 8 percent, and the market risk premium has been estimated to be 8 percent. Use Table II to answer the questions below. Round your answers for the questions below to the nearest cent.

Problem a) What is the current (time 0) value of a share of Highland stock? 

Problem b) What value would you project for a share of stock at the beginning of year 3?

Reference no: EM132861486

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