KzooKendrick
New member
- Joined
- Jul 22, 2013
- Messages
- 2
Hi All!
Here's the question:
The Long Shot Company is planning on opening a beach resort in Prince William Sound in Alaska. They expect the global warming and the new oil slides to make this a tourist bonanza. The company expects no growth in earnings for the first two years. However, they believe that earnings will grow at a rate of 5% per year for the third and fourth year and then increase to a 10% growth rate thereafter. The firm will pay no dividends during the zero growth period; 20% dividend payout during the 5% growth period; and 40% dividend payout during the 10% growth period. If the required return on such stock is 20%, what should the current price be? [E0 = $3.00 per share].
I have started the problem in excel, but I'm not quite sure where to go. I've calculated the EPS for the first two years, assuming the 20% return.
Y0 = $3.00
Y1 = $3.60
Y2 = $4.32
This is where I get stuck. Any help would be appreciated! (Also, this isn't actually my practice problem, I'm helping someone out with it). Thanks!
Here's the question:
The Long Shot Company is planning on opening a beach resort in Prince William Sound in Alaska. They expect the global warming and the new oil slides to make this a tourist bonanza. The company expects no growth in earnings for the first two years. However, they believe that earnings will grow at a rate of 5% per year for the third and fourth year and then increase to a 10% growth rate thereafter. The firm will pay no dividends during the zero growth period; 20% dividend payout during the 5% growth period; and 40% dividend payout during the 10% growth period. If the required return on such stock is 20%, what should the current price be? [E0 = $3.00 per share].
I have started the problem in excel, but I'm not quite sure where to go. I've calculated the EPS for the first two years, assuming the 20% return.
Y0 = $3.00
Y1 = $3.60
Y2 = $4.32
This is where I get stuck. Any help would be appreciated! (Also, this isn't actually my practice problem, I'm helping someone out with it). Thanks!