5-12 Simpkins Corporation is expanding rapidly, and it currently needs to retain all of its earnings

5-12 Simpkins Corporation is expanding rapidly, and it currently needs to retain all of its earnings

5-12 Non constant growth stock valuation

Chapter 5 Basic stock valuation

Simpkins Corporation is expanding rapidly, and it currently needs to retain all of its earnings; hence it does not pay any dividends.  However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today.  The dividend should grow rapidly – at a rate of 50% per year – during Years 4 and 5.  After Year 5, the company should grow at a constant rate of 8% per year.  If the required return on stock is 15%, what is the value of the stock today? CLICKHERE FOR THE SOUTION