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Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management’s forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock’s current value? Use the dividend values provided in the table below for your calculations. Do not round your intermediate calculations.

Year 0 1 2 3 4 5 6
Growth rate NA NA NA NA 90.00% 40.00% 8.00%
Dividends $0.0000 $0.0000 $0.0000 $0.2500 $0.4750 $0.6650 $0.7182
a. $13.69
b. $14.05
c. $15.48
d. $15.10
e. $16.76

The Francis Company is expected to pay a dividend of D1 = $2.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company’s beta is 1.40, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the company’s current stock price? Do not round intermediate calculations.

a. $50.74
b. $90.00
c. $21.03
d. $47.87
e. $37.50
 
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