Little River, Inc

question 10

Essay

Little River, Inc. has a 13% required rate of return. It does not expect to initiate dividends for 10 years, at which time it will pay $5 per share in dividends. At that time Little River expects its dividends to grow at 5% forever. What is an estimate of Little River's price in 10 years (P₁₀) if its dividend at the end of year 10 is $5.00? What is its price in today's dollars if you desire a rate of return of 13%? Repeat the problem, but replace the 10 years with 30 years and compare the two sets of prices. Describe the relationship between the number of years before you receive dividends and today's price.

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Definitions:

New Approaches

Innovative or alternative methods and strategies introduced to address issues or improve existing processes.

Standard of Living

The measure of affluence, convenience, tangible assets, and basic needs present for a particular economic group or location.

Labor Productivity

A gauge of economic productivity that determines the output of goods and services for every hour worked.

U.S. Labor Productivity Growth

The increase in the amount of goods and services produced per hour of labor in the United States over time.