Class – exercises – week 7 – BUS550
1) Fresno Corp. is a fast-growing company whose management expects it to grow at a rate
of 30 percent over the next two years and then slow down to a growth rate of 18 percent
for the following three years. If the last dividend paid by the company was $2.15,
estimate the dividends for the next five years. Compute the present value of these
dividends if the required rate of return is 14 percent.
D1 = D0(1 + g1) = 2.15(1.30) = 2.795
D1 = D0(1 + g1) = 2.795 (1.30) = 3.634
D1 = D0(1 + g1) = 3.634(1.18) =4.288
D1 = D0(1 + g1) = 4.288 (1.18) = 5.06
D1 = D0(1 + g1) =5.06 (1.18) = 5.97
2) Moriband Corp. paid a dividend of $2.15 yesterday. The company’s dividend is expected
to grow at a steady rate of 5 percent for the foreseeable future. If investors in stocks of
companies like Moriband require a rate of return of 15 percent, what should be the
