Agarwal Technologies was founded 10 years ago. It has been profitable for the la
ID: 2633333 • Letter: A
Question
Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value? Please be extremely descriptive on how you got the answer to this or no rating. I know the answer is $10.72 I just want to know how to get to that answer.
Year 0 1 2 3 4 5 6 Growth Rate NA NA NA NA 50.00% 25.00% 8.00% Dividends $0.00 $0.00 $0.00 $0.25 $0.375 $0.469 $0.506Explanation / Answer
Value of stock at moment t+5 calculated by simple Dividend growth model(Gordon):
P(t+5) = (0.25