Plutarch Corp. has recently developed a new product which is the first of its kind. Plutarch...

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Plutarch Corp. has recently developed a new product which is thefirst of its kind. Plutarch expects this will give it a significantfirst mover advantage in the market and that is expected to providegrowth in earnings per share of 400% within the coming year, and75% growth in each of the subsequent 3 years. After that time, itis expected competitors will have developed and brought to marketsimilar products with the result that Plutarch would expectearnings growth to drop back to its normal level of 3% per yearforever. Plutarch's cash dividend was 10 cents per share last yearand is expected to remain at that amount for each of the next 5years. In the sixth year, it is expected that the payout ratio willbe 80% of the earnings per share, and the payout ratio is expectedto remain at that level forever. The required rate of return onPlutarch's ordinary shares is 20% per year and the latest earningsper share was 25 cents.
Required:
Calculate the price that Plutarch Corp. ordinary shares shouldbe selling for in the market?

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Year EPS DPS 0 025 010 1 125 010 2 219 010 3 383 010 4 670 010 5 690 010 See Answer

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Plutarch Corp. has recently developed a new product which is thefirst of its kind. Plutarch expects this will give it a significantfirst mover advantage in the market and that is expected to providegrowth in earnings per share of 400% within the coming year, and75% growth in each of the subsequent 3 years. After that time, itis expected competitors will have developed and brought to marketsimilar products with the result that Plutarch would expectearnings growth to drop back to its normal level of 3% per yearforever. Plutarch's cash dividend was 10 cents per share last yearand is expected to remain at that amount for each of the next 5years. In the sixth year, it is expected that the payout ratio willbe 80% of the earnings per share, and the payout ratio is expectedto remain at that level forever. The required rate of return onPlutarch's ordinary shares is 20% per year and the latest earningsper share was 25 cents.Required:Calculate the price that Plutarch Corp. ordinary shares shouldbe selling for in the market?