Cup of Tea Inc. paid an annual dividend of $2.5 per share today. It is expecting to grow this dividend by 4% a year until a major newly developed product is finally launched and boosts the growth rate forever. This product is expected to be ready in three years’ time and the growth rate will be bumped up by 1.5%. The market is expecting a return of 6% from companies such as Cup of Tea Inc. Please estimate its fair market value per share.
Cup of Tea Inc. paid an annual dividend of $2.5 per share today. It is expecting to grow this dividend by 4% a year until a major newly developed product is finally launched and boosts the growth rate forever. This product is expected to be ready in three years’ time and the growth rate will be bumped up by 1.5%. The market is expecting a return of 6% from companies such as Cup of Tea Inc. Please estimate its fair market value per share.
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 16P
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Cup of Tea Inc. paid an annual dividend of $2.5 per share today. It is expecting to grow this dividend by 4% a year until a major newly developed product is finally launched and boosts the growth rate forever. This product is expected to be ready in three years’ time and the growth rate will be bumped up by 1.5%. The market is expecting a return of 6% from companies such as Cup of Tea Inc. Please estimate its fair market value per share.
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