Ezzell Pakistan is a Public Limited Company listed on the three stocks exchanges of the country i.e. Karachi, Lahore and Islamabad. The company deals in manufacturing of Electric appliances. The research and development department of the corporation has developed a solar panel capable of generating 200 % more electricity than any solar panel currently available in the market. As a result of this achievement, the financial analysts in stock market expect that the company will experience a 15% annual growth rate for the next five years. By the end of 5 years, other firms will have developed comparable technologies; and the corporation’s growth rate will slow down to 5% per annum for an indefinite period. Stockholders require a return of 12% on Ezzell Pakistan‘s common stocks. The most recent annual dividend (Do), which was paid yesterday, was Rs.1.75 per share.
Required:
a) Calculate expected dividends of the company for the next five years
b) Calculate the value of the stock today i.e. Po.
c) Calculate the expected dividend yields for 1st, 5th and 6th years.
(e.g. for 1st year Dividend yield = D1/ Po)
