The Hart Mountain Company

Get your custom answer from our expert tutors to this homework question:The Hart Mountain Company has recently discovered a new type of kitty litter which is extremely absorbent. It is expected that the firm will experience (beginning now) an unusually high growth rate (20 percent) during the period (3 years) it has exclusive rights to the property where the raw material used to make this kitty litter is found. However, beginning with the fourth year the firm’s competition will have access to the material, and from that time on the firm will achieve a normal growth rate of 8 percent annually. During the rapid growth period, the firm’s dividend payout ratio will be relatively low (20 percent) in order to conserve funds for reinvestment. However, the decrease in growth in the fourth year will be accompanied by an increase in dividend payout to 50 percent. Last year’s earnings were E0 = $2.00 per share, and the firm’s required return is 10 percent. What should be the current price of the common stock?The Hart Mountain Company has recently discovered a new type of kittylitter which is extremely absorbent. It is expected that the firm willexperience (beginning now) an unusually high growth rate (20 percent)during the period (3 years) it has exclusive rights to the propertywhere the raw material used to make this kitty litter is found. However,beginning with the fourth year the firm’s competition will have accessto the material, and from that time on the firm will achieve a normalgrowth rate of 8 percent annually. During the rapid growth period, thefirm’s dividend payout ratio will be relatively low (20 percent) inorder to conserve funds for reinvestment. However, the decrease ingrowth in the fourth year will be accompanied by an increase in dividendpayout to 50 percent. Last year’s earnings were E0 = $2.00 per share,and the firm’s required return is 10 percent. What should be the currentprice of the common stock?

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