Percentages need to be entered in decimal format, for instance 3% would be entered as .03. 2.Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share. What is the current price (P0) of the stock today? What is the market value (price) at the end of Year 3.Consider the scenario in Question 2 and suppose your boss believes that Ultimate's annual nonconstant growth rate will only be 12% during the next five years and that the firm's normal growth rate will only be 4%. Under these conditions, what is the current price of Ultimate's stock? What is the price at the end of Year 5?4. Consider the scenario in Question 2 and suppose your boss regards Ultimate as being quite risky; therefore, your boss believes that the required rate of return should be higher than the 12% originally specified. What is the current price of the stock, if the required rate of return is 13%? 15%? 20%? What is the effect of the higher required rates of return on Ultimate's stock price? ### Graph Description:The graph is a simple bar chart with a gray background, showing four vertical bars, each filled with a light blue color. The bars are aligned horizontally along the x-axis, labeled with numbers from 1 to 4. The y-axis is labeled with numbers from 0 to 5, indicating the scale or magnitude of values.- **Bar 1**: Reaches a height of 1 on the y-axis.- **Bar 2**: Reaches a height of 1 on the y-axis.- **Bar 3**: Reaches a height of 1 on the y-axis.- **Bar 4**: Reaches a height of 2 on the y-axis.There is no title, legend, or specific labels indicating what the numbers represent; the graph shows a simple comparison of values. Each unit on the x-axis corresponds to a single bar, and the height of each bar represents the value associated with each unit. **Chapter 7 Spreadsheet-Related Problem (C07)****Supernormal Growth Stock Valuation**1. The following model is set up to compute the value of a stock of a company that experiences supernormal growth for a maximum of five years.2. There are several instructions with which you should be familiar to use these computerized models. These instructions appear in a separate worksheet labeled INSTRUCTIONS. If you have not already done so, you should read these instructions now. To read these instructions, click on the worksheet labeled INSTRUCTIONS.**Input Data:**- Nonconstant growth: 25.00%- Normal (constant) growth: 2.00%- Required rate of return: 11.00%- Last dividend (D0): $1.25- Supernormal period: 4 years**Key Outputs:**- **Current price (P0):** $29.57- **Price at the end of Year 4:** $34.59- **Dividend yield in Year 1:** 5.28%- **Dividend yield in Year 4:** 9.00%- **Capital gains yield in Year 1:** 5.72%- **Capital gains yield in Year 4:** 2.00%- **Total return both years:** 11.00%**Model-Generated Data:****Expected Dividends:**- Year 1: 1.56- Year 2: 1.95- Year 3: 2.44- Year 4: 3.05- Year 5: **PV of Dividends:**- Year 1: 1.41- Year 2: 1.59- Year 3: 1.79- Year 4: 2.01- Year 5:**Stock Price:**- **End of Year 4:** 34.59**Stock Price Today, P0:** 29.57**Yields in Year 4:**- Dividend: 9.00%- Capital Gain: 2.00%- Total: 11.00%**Yields in Year 1:**- Dividend: 5.28%- Capital Gain: 5.72%- Total: 11.00%This information can be used to analyze the stock valuation in a scenario of supernormal

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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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Percentages need to be entered in decimal format, for instance 3% would be entered as .03.

2.Ultimate Electric, Inc. has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15% annual (nonconstant) growth rate for the next five years (supernormal period). When the five-year period ends, other firms will have developed comparable technology, and Ultimate's growth rate will slow to 5% per year (constant) indefinitely. Stockholders require a return of 12% on Ultimate's stock. The firms's most recent annual dividend (D₀), which was paid yesterday, was $1.75 per share. What is the current price (P₀) of the stock today? What is the market value (price) at the end of Year

3.Consider the scenario in Question 2 and suppose your boss believes that Ultimate's annual nonconstant growth rate will only be 12% during the next five years and that the firm's normal growth rate will only be 4%. Under these conditions, what is the current price of Ultimate's stock? What is the price at the end of Year 5?

4. Consider the scenario in Question 2 and suppose your boss regards Ultimate as being quite risky; therefore, your boss believes that the required rate of return should be higher than the 12% originally specified. What is the current price of the stock, if the required rate of return is 13%? 15%? 20%? What is the effect of the higher required rates of return on Ultimate's stock price?

### Graph Description:

The graph is a simple bar chart with a gray background, showing four vertical bars, each filled with a light blue color. The bars are aligned horizontally along the x-axis, labeled with numbers from 1 to 4. The y-axis is labeled with numbers from 0 to 5, indicating the scale or magnitude of values.

- **Bar 1**: Reaches a height of 1 on the y-axis.
- **Bar 2**: Reaches a height of 1 on the y-axis.
- **Bar 3**: Reaches a height of 1 on the y-axis.
- **Bar 4**: Reaches a height of 2 on the y-axis.

There is no title, legend, or specific labels indicating what the numbers represent; the graph shows a simple comparison of values. Each unit on the x-axis corresponds to a single bar, and the height of each bar represents the value associated with each unit.

**Chapter 7 Spreadsheet-Related Problem (C07)**

**Supernormal Growth Stock Valuation**

1. The following model is set up to compute the value of a stock of a company that experiences supernormal growth for a maximum of five years.

2. There are several instructions with which you should be familiar to use these computerized models. These instructions appear in a separate worksheet labeled INSTRUCTIONS. If you have not already done so, you should read these instructions now. To read these instructions, click on the worksheet labeled INSTRUCTIONS.

**Input Data:**
- Nonconstant growth: 25.00%
- Normal (constant) growth: 2.00%
- Required rate of return: 11.00%
- Last dividend (D0): $1.25
- Supernormal period: 4 years

**Key Outputs:**
- **Current price (P0):** $29.57
- **Price at the end of Year 4:** $34.59
- **Dividend yield in Year 1:** 5.28%
- **Dividend yield in Year 4:** 9.00%
- **Capital gains yield in Year 1:** 5.72%
- **Capital gains yield in Year 4:** 2.00%
- **Total return both years:** 11.00%

**Model-Generated Data:**

**Expected Dividends:**
- Year 1: 1.56
- Year 2: 1.95
- Year 3: 2.44
- Year 4: 3.05
- Year 5:

**PV of Dividends:**
- Year 1: 1.41
- Year 2: 1.59
- Year 3: 1.79
- Year 4: 2.01
- Year 5:

**Stock Price:**
- **End of Year 4:** 34.59

**Stock Price Today, P0:** 29.57

**Yields in Year 4:**
- Dividend: 9.00%
- Capital Gain: 2.00%
- Total: 11.00%

**Yields in Year 1:**
- Dividend: 5.28%
- Capital Gain: 5.72%
- Total: 11.00%

This information can be used to analyze the stock valuation in a scenario of supernormal

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