The Satellite Building Company has fallen on hard times.Its management expects to pay no dividends for the next 2 years.However,the dividend for Year 3, ,will be $1.00 per share,and the dividend is expected to grow at a rate of 3 percent in Year 4,6 percent in Year 5,and 10 percent in Year 6 and thereafter.If the required return for Satellite is 20 percent,what is the current equilibrium price of the stock?
A) $0
B) $5.26
C) $6.34
D) $12.00
E) $13.09

Question

The Satellite Building Company has fallen on hard times.Its management expects to pay no dividends for the next 2 years.However,the dividend for Year 3,  ,will be $1.00 per share,and the dividend is expected to grow at a rate of 3 percent in Year 4,6 percent in Year 5,and 10 percent in Year 6 and thereafter.If the required return for Satellite is 20 percent,what is the current equilibrium price of the stock?
A) $0 
B) $5.26 
C) $6.34 
D) $12.00 
E) $13.09

Quizplus · Accepted Answer

The Answer of The Satellite Building Company has fallen on hard times.Its management expects to pay no dividends for the next 2 years.However,the dividend for Year 3,  ,will be $1.00 per share,and the dividend is expected to grow at a rate of 3 percent in Year 4,6 percent in Year 5,and 10 percent in Year 6 and thereafter.If the required return for Satellite is 20 percent,what is the current equilibrium price of the stock?
A) $0 
B) $5.26 
C) $6.34 
D) $12.00 
E) $13.09

The Satellite Building Company Has Fallen on Hard Times