Sawchuck Consulting Has Been Profitable for the Last 5 Years

question 47

Multiple Choice

Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?
$\begin{array}{lccccccc}\text { Year } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Growth rate } & \text { NA } & \text { NA } & \text { NA } & \text { NA } & 50.00 \% & 25.00 \% & 8.00 \% \\\text { Dividends } & \$ 0.000 & \$ 0.000 & \$ 0.000 & \$ 0.250 & \$ 0.375 & \$ 0.469 & \$ 0.506\end{array}$

• A) $9.94
• B) $10.19
• C) $10.45
• D) $10.72
• E) $10.99

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Definitions:

Cerebellum

A part of the brain located at the back of the skull that regulates coordination and balance.

Brainstem

The lower part of the brain, connecting the cerebrum with the spinal cord, and responsible for controlling basic life functions such as breathing and heartbeat.

Cerebral Cortex

The outer layer of the brain's cerebrum, involved in high-level functions such as sensory perception, cognition, generation of motor commands, and language.

Convoluted Outer Layer

Referring typically to the cerebral cortex of the brain, noted for its deeply wrinkled surface, increasing the surface area for neural connections.