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Stock Projections

Garrett Corp. has been going through a difficult financial period. Over the past three year, its stock price has dropped from $50 to $18 per share. Throughout this downturn, Garrett has managed to pay a $1 dividend each year. Management feels the worst is over but intends to maintain the $1 dividend for three more years, after which they plan to increase it by 6% per year indefinitely. Comparable stocks are returning 11%.

1. If these projections are accurate, is Garrett stock a good buy at $18?
2. How do you think the market feels about Garrett's management?

Solution Preview

Garrett Corp. has been going through a difficult financial period. Over the past three year, its stock price has dropped from $50 to $18 per share.
Throughout this downturn, Garrett has managed to pay a $1 dividend each year. Management feels the worst is over but intends .
to maintain the $1 dividend for three more years, after which they plan to increase it by 6% per year indefinitely. Comparable stocks are returning 11%

1. If these projections are ...

Solution Summary

This solution finds the present value of the cash inflows to determine if the Garrett stock is a good buy at $18 and also explains what the market feels about Garrett's management.

$2.19