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[answered] Massy United Ltd. has been experiencing high levels of grow


Massy United Ltd. has been experiencing high levels of growth over the past 5 years and management has decided to retain most of its earnings to finance that intense growth level. IN light of this, the company has decided to reduce its annual dividend by 30 percent annually for the next 2 years. After that, it will maintain a constant dividend of $2.50 a share. Last year, the company paid$3.60 as the annual dividend per share. If the required rate of return is 14.5 percent what is the market value of its stock?


PVF@14.50

 

% Present

 

value D1 $

 

2.52 0.873 $

 

2.20 D2 $

 

1.76 0.763 $

 

1.35 D3 $

 

2.50 Share price in

 

year 2 $

 

17.24 0.763 $

 

13.15 2.50/14.50

 

%

 

Market

 

value of

 

stock (P0) $

 

16.70

 

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