ABC Corporation started business in 2005. The growth rate for the first 4 years

Question

ABC Corporation started business in 2005. The growth rate for the first 4 years was exceptional i.e. 25% per year. After the fourth year the growth rate became constant at 6 percent. The treasury bills offer 5%, while market offers on investment equal 12%. The beta for the company is 0.85. Investment consists of $35 million, and equity consists of 8 million preferred stocks and 19million common stocks. The latest dividend issued was $4 . The free cash flow stream for the last 5 years have been -2million, 3 million. 3.5million, 5 million and 10million. The company paid taxes at the rate of 35% on its
a) Calculate the stock value for year-1 using the discounted dividend model.

Explanation / Answer

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