{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ch07 Expansion Incorporated Demo Problem

# ch07 Expansion Incorporated Demo Problem - 2011 Dr William...

This preview shows pages 1–6. Sign up to view the full content.

Chapter 7 Equity Valuation Non-Normal Growth: 3 Steps to Finding P0 1. Find the PV of the dividends during the non-normal growth period or periods. 2a. Find the value of the C/S at the beginning of the normal growth period. 2b. Discount answer 2a to the present. 3. Sum steps 1 and 2b to find P0. 1 © 2011 Dr. William F. Rentz & Associates

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Example: Expansion Incorporated The firm Expansion Inc. (EI) expects to pay dividends of \$10.00 per share for 2011. Thereafter, dividends are expected to increase by 20% per annum for the years 2012 through 2017. Dividends are expected to REMAIN at the 2017 level for the years 2018 through 2021. © 2011 Dr. William F. Rentz & Associates 2
Example: Expansion Incorporated Thereafter, dividends will INCREASE at a compound rate of 6% per year from the 2021 level for the foreseeable future. Shareholders of EI require a 16% rate of return. © 2011 Dr. William F. Rentz & Associates 3

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Example: expansion incorporated REQUIRED: Estimate the price for EI at the BEGINNING of the year 2011. To do this, we will use the three-step approach outlined previously in Slide #1. © 2011 Dr. William F. Rentz & Associates 4
Example: expansion incorporated STEP 1 Calculate the dividends D1 through D11 (i.e. the dividends for 2011 through 2021) and then find the PV of these dividends © 2011 Dr. William F.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}