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.

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.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

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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?
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.)
Even Better Products has come out with an even better product. As a result, the firm projects an ROE of 20% and it will maintain a plowback ratio of 0.30. Its earnings this year will be $2 per share. Investors expect a 12% rate of return on the stock. a) At what price an dP/E ratio would you expect the firm to sell? b) What is the present value of growth opportunities?
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A company projects a rate of return of 20% on new projects. Management plans to plow back 20% of all earnings into the firm. Earnings this year will be $6 per share, and investors expect a rate of return of 12% on stocks facing the same risks as this company. What is the sustainable growth rate? What is the stock price? What is the present value of growth opportunities (PVGO)? What is the P/E ratio? What would the price and P/E ratio be if the firm paid out all earnings as dividends? Please show workings with formulas.
ARN has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share. Investors expect a 9% rate of return on the stock.What is the present value of growth opportunities for ARN? Round your answer to two decimal places.
A small start-up biotech firm anticipates that it will have cash outflows of $200,000 per year at the end of the next 3 years. Then the firm expects a positive cash flow of $50,000 at the EOY 4 and positive cash flows of $250,000 at the EOY 5-9. MARR is 15% per year? a.) What is the net AW? b.) What is the net FW? Please show the solution and not the one in excel thank you!
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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?
You are planning to produce a new action figure called "Nia." However, you are very uncertain about the demand for the product. If it is a hit, you will have net cash flows of $80 million per year for three years (starting next year [i.e., at t = 1]). If it fails, you will only have net cash flows of $40 million per year for two years (also starting next year). There is an equal chance that it will be a hit or failure (probability = 50 percent). You will not know whether it is a hit or a failure until the first year's cash flows are in (i.e., at t = 1). You must spend $140 million immediately for equipment and the rights to produce the figure. If you can sell your equipment for $90 million once the first year's cash flows are received, calculate the value of the abandonment option. (The discount rate is 10 percent.) Multiple Choice $24.38 $18.56 -$5.82 $0.00