Problem p7 14 the construction will have a limiting

Problem P7-14
The construction will have a limiting effect on earnings during that time, but when completed, it should
in earnings and dividends. Last year, the company paid a dividend of $3.40.
It expects zero growth in the next year. In years 2 and 3, 5% growth is expected, and in year 4, 15% grow
In year 5 and thereafter, growth should be a constant 10% per year.
What is the maximum price per share that an investor who requires a return of 14% should pay for Hom
Calculate the dividends from year 1 to year 4
Common stock value: Variable growth Home Place Hotels Inc. is entering into a 3-year remodeling a
74.50
An investor should pay a maximum price of $82.76 per share to Home Place Hotels common stock who

allow the company to enjoy much improved growth
wth.
me Place Hotels common stock?
and expansion project.
o required a return of 14%.

Problem P7-15
Find the market value of Lawrence’s shares when:
a. Dividends are expected to grow at 8% annually for 3 years, followed by a 5% constant annual growt
b. Dividends are expected to grow at 8% annually for 3 years, followed by a 0% constant annual growt
c. Dividends are expected to grow at 8% annually for 3 years, followed by a 10% constant annual grow
Common stock value: Variable growth Lawrence Industries’ most recent annual dividend was $1.80
15.07

th rate in year 4 to infinity.
th rate in year 4 to infinity.
wth rate in year 4 to infinity.
0 per share (D0=$1.80), and the firm’s required return is 11%.