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  3. a young company currently does not pay a dividend.

A young company currently does not pay a dividend. The company retains all its earnings...

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Question

Accounting

  1. A young company currently does not pay a dividend. The company retains all its earnings to finance its growth. However, 10 years from now the company is expected to start paying a $1.50 dividend. According to analysts, the dividend should then grow by 5% annually forever. If the required return on the share investment is 15%, what should be the company's share price five years from today?

    a.

    $16.28
    b.

    $8.57
    c.

    $11.50
    d.

    $6.24

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