Simpkins Corporation does not pay any dividends because

jagguarpaw January 17, 2017 0 Comments

Question: Simpkins Corporation does not pay any dividends be…

Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. 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 70% per year – during Years 4 and 5. After Year 5, the company should grow at a constant rate of 10% per year. If the required return on the stock is 15%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Round your answer to the nearest cent. Do not round your intermediate computations.