Posted: November 28th, 2022
5-12 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?
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