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August 31, 2014

Homework Help: finance

Posted by Dora on Saturday, September 10, 2011 at 10:08pm.

The Blinkelman Corporation has just announced that it plans to introduce a new solar panel that will greatly reduce the cost of solar energy. As a result, analys now expect the company’s earnings, currently (year 0) $1 per share to grow by 50 percent per year for the next three years, by 25 percent per year for the following 3 years, and by 8 percent per year thereafter. Blinkelman does not currently pay a dividend but it expects to pay out 20 percent of its earning beginning 2 years from now. The payout ratio is expected to become 50 percent in 5 years and to remain at that level. The company’s marginal tax rate is 40 percent. If you require a 20 percent rate of return on a stock such as this, how much would you be willing to pay for it today?

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