Your firm is getting ready to price their Initial Public Offering of common stock and your job is to estimate the offer price correctly. For the next 2 years you will pay dividends of $2 per share at the end of year one and $2.40 at the end of year 2. After year 2 dividends will still be paid but the growth rate will settle down to 5% per year. The required return on equity is 9%,

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 13P
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Your firm is getting ready to price their Initial Public Offering of common stock and your job is to estimate the offer price
correctly.
For the next 2 years you will pay dividends of $2 per share at the end of year one and $2.40 at the end of year 2. After year 2.
dividends will still be paid but the growth rate will settle down to 5% per year.
The required return on equity is 9%.
Transcribed Image Text:Your firm is getting ready to price their Initial Public Offering of common stock and your job is to estimate the offer price correctly. For the next 2 years you will pay dividends of $2 per share at the end of year one and $2.40 at the end of year 2. After year 2. dividends will still be paid but the growth rate will settle down to 5% per year. The required return on equity is 9%.
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