Suppose that Domino’s Pizza, Inc. (DPZ) is selling for $305.00. Analysts believe that the growth rate for DPZ will be 20% per year for the next three years, 15% per year for the following two years, and thereafter the growth rate will be 8% indefinitely. DPZ’s most recent cash dividend per share was $5.00. The dividend will grow by the same rate as the company. Stockholders require a return of 15 percent on DPZ’s common stock. Required: Based on the above assumptions, determine the price of DPZ’s common stock. Explain whether an investor should buy the stock.
Suppose that Domino’s Pizza, Inc. (DPZ) is selling for $305.00. Analysts believe that the growth rate for DPZ will be 20% per year for the next three years, 15% per year for the following two years, and thereafter the growth rate will be 8% indefinitely. DPZ’s most recent cash dividend per share was $5.00. The dividend will grow by the same rate as the company. Stockholders require a return of 15 percent on DPZ’s common stock. Required: Based on the above assumptions, determine the price of DPZ’s common stock. Explain whether an investor should buy the stock.
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 4P
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Suppose that Domino’s Pizza, Inc. (DPZ) is selling for $305.00. Analysts believe that the growth rate for DPZ will be 20% per year for the next three years, 15% per year for the following two years, and thereafter the growth rate will be 8% indefinitely. DPZ’s most recent cash dividend per share was $5.00. The dividend will grow by the same rate as the company. Stockholders require a return of 15 percent on DPZ’s common stock.
Required:
- Based on the above assumptions, determine the price of DPZ’s common stock.
- Explain whether an investor should buy the stock.
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