A team of analysts is using a two-stage variable growth model toestimate the value of GNC's common stock. The most recentannual dividend paid by GNC was $4 per share. The analystsexpect dividends to increase 7% per year for the next 3 yearsand then drop to 3% starting in year 4 and remain at that ratefor the foreseable future. The required rate of return used forthe analysis is 8%.a) What are the expected dividends for the next 4 years?b) What is the value of the stock attributable to the first 3 yearsof dividends? (use NPV function)c) What is the value of the stock at the end of year 3? (useconstant-growth model) Use a cell reference in the numerator toget an unrounded, more precise, answer figure.d) What is the value of the stock attributable to years 4 andbeyond? (use pv function, where answer to part C is the fv)e) What is the total value of GNC stock?

Given:Most recent dividend (D0) = $4.00Growth rate for first 3 years = 7%Growth rate from year 4…

Answered: A team of analysts is using a two-stage…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 18MC

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