8. Nonconstant growth stock Aa Aa As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 4.00% per year. The risk-free rate (rRF) is 5.00%, the market risk Value Term premium (RPM) is 6.00%, and Portman's beta is 1.90. Dividends one year from now (D1) Horizon value (P1) Assuming that the market is in equilibrium, use the Intrinsic value of Portman's stock information just given to complete the table. What is the expected dividend yield for Portman's stock today? 9.92% 12.40% 11.92% 13.88%

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
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8. Nonconstant growth stock
Aa Aa
As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or
variable,
growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model.
For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of
the company's stock.
Consider the case of Portman Industries:
Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very
profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though,
Portman's dividend is expected to grow at a constant rate of 4.00% per year.
The risk-free rate (rRF) is 5.00%, the market risk
Value
Term
premium (RPM) is 6.00%, and Portman's beta is 1.90.
Dividends one year from now (D1)
Horizon value (P1)
Assuming that the market is in equilibrium, use the
Intrinsic value of Portman's stock
information just given to complete the table.
What is the expected dividend yield for Portman's stock today?
9.92%
12.40%
11.92%
13.88%
Transcribed Image Text:8. Nonconstant growth stock Aa Aa As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 4.00% per year. The risk-free rate (rRF) is 5.00%, the market risk Value Term premium (RPM) is 6.00%, and Portman's beta is 1.90. Dividends one year from now (D1) Horizon value (P1) Assuming that the market is in equilibrium, use the Intrinsic value of Portman's stock information just given to complete the table. What is the expected dividend yield for Portman's stock today? 9.92% 12.40% 11.92% 13.88%
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