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?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Treet Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microsoft to begin paying dividends, with the ﬁrst dividend of $6.00 coming 3 years from today. The dividend should grow rapidly—at a rate of 60 percent per year—during Years 4 and 5. After Year 4, the company should grow at a constant rate of 7 percent per year. If the required rate of return on the stock is 10 percent, what is the value of the stock today?
Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 8% per year. If Do $5 and rs = 17%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent. $
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 28% for the next 2 years, 18.00% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 6.25%. The company’s last dividend was $1.00, its beta is 1.75, the market risk premium is 6.55%, and the risk-free rate is 4.50%. 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.
When NCREIF returns and REIT returns are compared, NCREIF returns exhibit a much lower pattern of variation. Why might this be the case?
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, 21.45% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 6.50%. The company’s last dividend was $1.75, its beta is 1.15, the market risk premium is 9.70%, and the risk-free rate is 5.00%. 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.
Your company has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 43.50% this year, 24.50% next year, after which growth should match the 6.00% industry average growth rate, which is a more sustainable rate. The last dividend paid (D0) was $1.40 and your firm's WACC is 12.54%. What is the value per share of your firm's stock?
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. At what price and P/E ratio would you expect the firm to sell and what is the preset value of growth opportunities?
Please answer fast i give you upvote.
Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 9% per year. If D0 = $5 and rs = 14%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent.
Do not use Excel or Matrix You have to show your work 6. Sun Co., an electronics product manufacturer, is expecting to pay a dividend of $2 per share this year (end of the year, at t = 1). Based on market research for its products and production costs, Sun expects the dividend to grow at the rate of 15% per year in years two and three. Subsequently, the growth will be closer to the industry average, which is 4%. Sun’s cost of equity is 13%, what must be the a. value of each share three years from now, after the dividend for the third year is paid? b. value of each share now?
Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $2.00 coming 3 years from today. The dividend should grow rapidly—at a rate of 26% per year—during Years 4 and 5, but after Year 5, growth should be a constant 4% per year. If the required return on Computech is 17%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent. $
Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $1.25 coming 3 years from today. The dividend should grow rapidly - at a rate of 35% per year - during Years 4 and 5; but after Year 5, growth should be a constant 6% per year. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet If the required return on Computech is 18%, what is the value of the stock today? Round your answer to the nearest cent. Do not round your intermediate calculations. $ fill in the blank 2

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