1. MarvelLure Inc., a company that was set up in 2000 to produce and market a new high-tech fishing lure. MarvelLure’s sales are currently growing at a rate of 200 percent per year. The company expects to experience a high but declining rate of growth in sales and earnings during the next 10 years, after which analysts estimate that it will grow at a steady 10 percent per year. The firm’s management has announced that it will pay no dividends for five years, but if earnings materialize as forecasted, it will pay a dividend of $0.20 per share at the end of Year 6, $0.30 in Year 7, $0.40 in Year 8, $0.45 in Year 9, and $0.50 in Year 10. After Year 10, current plans are to increase the dividend by 10 percent per year. MarvelLure’s investment bankers estimate that investors require a 15 percent return on similar stocks. Required: Determine the value of a share of MarvelLure’s stock.
1. MarvelLure Inc., a company that was set up in 2000 to produce and market a new high-tech fishing lure. MarvelLure’s sales are currently growing at a rate of 200 percent per year. The company expects to experience a high but declining rate of growth in sales and earnings during the next 10 years, after which analysts estimate that it will grow at a steady 10 percent per year. The firm’s management has announced that it will pay no dividends for five years, but if earnings materialize as
Required:
Determine the value of a share of MarvelLure’s stock.
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