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:

Domestic Market

The availability and need for products and services inside the boundaries of a nation.

Surplus

A situation where the quantity of a product or resource exceeds the quantity demanded or utilized.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, reflecting additional benefit to producers.

Tariff

A tariff is a tax imposed by a government on imported or exported goods, often used to protect domestic industries or to generate revenue.