Agarwal Technologies was founded 10 years ago. It has been profitable for the la

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? Year 0 1 2 3 4 5 6 Growth rate NA NA NA NA 65.00% 32.50% 8.00% Divs $0.000 $0.000 $0.000 $0.250 $0.413 $0.547 $0.590

Explanation / Answer

$10.72

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