Non-constant growth - sample questions for exam PDF

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Non-constant growth sample problems: 1. Hot Wings, Inc., has an odd dividend policy. The company has just paid a dividend of $11.25 per share and has announced that it will increase the dividend by $9.25 per share for each of the next four years, and then never pay another dividend. If you require a return of 13 percent on the company’s stock, how much will you pay for a share today? a. Create the timeline b. Solution?

2. Burton Corp. is growing quickly. Dividends are expected to grow at a rate of 32 percent for the next three years, with the growth rate falling off to a constant 6.2 percent thereafter. If the required return is 14 percent and the company just paid a dividend of $2.85, what is the current share price? a. Create the timeline - include i. the required rate of return ii. the time periods (identify the horizon) iii. the future cash flows (calculate the first three dividends and then the value of all dividends from year 4 to infinity) iv. P0 (what you are solving for) b. Solution?

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