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HighTech Company is expected to retain all of its earnings forthe next two years but start to pay dividends 3 years from today.The first dividend is expected to be $3. Assume that the dividendswill grow rapidly at a rate of 10% per year during years 4 to 7.For each year after that it grows at a constant rate of 5%. Assumea discount rate of 12%.

  1. What is HighTech’s stock price?
  2. Assume that instead of growing at a 5% constant rate startingfrom year 8, HighTech Company expects, in year 8, to earn an EPS of$8 and reinvest $4 per share to develop new technology. The newtechnology will generate a 15% return permanently.

What is the constant growth startingfrom year 8?

What is the stock price today giventhis constant growth rate?

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Collen Von
Collen VonLv2
28 Sep 2019

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