solution
solution.
You are managing a successful manufacturing company focusing on agricultural products. The company did not pay a dividend last year and is not expected to do so for the next two years. Last year the company’s growth accelerated, and management expects to grow the business at a rate of 30 percent for the next five years before growth slows to a more stable rate of 7 percent. In the third year, management has forecasted a dividend payment of R1.20. Dividends will grow with the company thereafter. The required rate of return for such stocks is 11 percent.
Required: 1. Calculate the value of the company’s stock at the end of its rapid growth period (i.e., at the end of five years). (7)
2. What is the current value of this share? (5)
Required: 1. Calculate the value of the company’s stock at the end of its rapid growth period (i.e., at the end of five years). (7)
2. What is the current value of this share? (5)
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