Scenario 1: Astwood Company’s current stock price is $36, its last dividend was $2.40, and its required rate of return is 12 percent. If dividends are expected to grow at a constant rate, g, in the future, and if rs is expected to remain at 12 percent,
I. Find the growth rate of the stock
II. What is Fletcher’s expected stock price in year 5?
II. What is Fletcher’s expected stock price in year 7?
Scenario 2: Astwood Company is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 15 percent during the next 2 years, 13 percent the following year, and at a constant rate of 6 percent during Year 4 and thereafter. Its last dividend was $1.15, and its required rate of return is 12 percent.
I. What is the value of the stock today?
II. Calculate Pˆ1