33. Nonconstant Growth. Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV, = $1 per share. (LO7-2) a. What are the expected values of: (i) DIV1, (ii) DIV2, (iii) DIV3, and (iv) DIV4? b. What is the expected stock price 4 years from now? The discount rate is 10%. c. What is the stock price today?

33. Nonconstant Growth. Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV, = $1 per share. (LO7-2) a. What are the expected values of: (i) DIV1, (ii) DIV2, (iii) DIV3, and (iv) DIV4? b. What is the expected stock price 4 years from now? The discount rate is 10%. c. What is the stock price today?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 11P: Brushy Mountain Mining Companys coal reserves are being depleted, so its sales are falling. Also,...

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Brushy Mountain Mining Companys coal reserves are being depleted, so its sales are falling. Also, environmental costs increase each year, so its costs are rising. As a result, the companys earnings and dividends are declining at the constant rate of 4% per year. If D0 = 6 and rs = 14%, what is the estimated value of Brushy Mountains stock?
Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV0 = $1 per share. Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of .5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Tinsley, Incorporated, wishes to maintain a growth rate of 17 percent per year and a debt-equity ratio of 1.1. The profit margin is 4.4 percent, and total asset turnover is constant at 1.04. What is the dividend payout ratio? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is the maximum sustainable growth rate for this company? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for four years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV1 = $1 per share. What are the expected values of (i) DIV1 , (ii) DIV2, (iii) DIV3, and (iv) DIV4? What is the expected stock price four years from now? The discount rate is 10%. What is the stock price today? Find the dividend yield, DIV1/P0. What will next year's stock price, P1, be? What is the expected rate of return to an investor who buys the stock now and sells it in one year?
This is the full question Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV0 = $1 per share. Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of 0.5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 32 percent for the next three years, with the growth rate falling off to a constant 6.2 percent thereafter.If the required return is 14 percent and the company just paid a dividend of $2.85, what is the current share price? Antiques 'R' Us is a mature manufacturing firm. The company just paid a dividend of $11.40, but management expects to reduce the payout by 4.75 percent per year, indefinitely. If you require a return of 8 percent return on this stock, what will you pay for a share today?
The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20 percent next year and then decreasing the growth rate to a constant 5 percent per year. The company just paid its annual dividend in the amount of $1 per share. What is the current value of a share if the required rate of return is 14 percent? a. 13.28 b. 13.42 c. 13.33 d. 13.19 e. 13.24
Hallo Ltd. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 30% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D , was RM1.50, its beta is 1.60, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? P/s : step by step calculations pls. do not use excel sheet. thank you.
Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 41% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? Do not round intermediate calculations.
Adobe Systems has come out with a new and improved product. As a result, the firm projects an ROE of 22.5%, and it will maintain a plowback ratio of .50. Its projected earnings are $3.75 per share. Investors expect an 18% rate of return on the stock. What would the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 40% of its earnings?
Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 32% for the next 2 years, 22.05% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 5.25%. The company’s last dividend was $0.85, its beta is 1.05, the market risk premium is 7.00%, and the risk-free rate is 7.25%. What is the current price of the common stock?
Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 34% for the next 2 years, 19.50% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 5.75%. The company’s last dividend was $1.60, its beta is 1.95, the market risk premium is 8.50%, and the risk-free rate is 6.50%. What is the current price of the common stock?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. A. $18.18 B. $14.91 C. $16.00 D. $19.64 E. $16.55