Problem:
CeeBros Builderrs is expanding very fast and is expected to grow at a rate of 25 Percent for the next four years. The company recently paid a dividend of $3.60 but is not expected to pay any dividends for the next three years. In year 4 management expects to pay a $5.61 dividend and thereafter to increase the dividend at a constant rate of 7.5 Percent. The required rate of return on such stocks is 17 percent.
Required:
Question 1: Calculate the present value of the dividends during the fast-growth period.(round to two decimal places)
Question 2: What is the value of the stock at the end of the fast-growth period.
Question 3: What is the value of the stock today?
Question 4: Would today"sstock value be affected by the length of time you intend to hold the stock?
Note: Provide support for your underlying principle.