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?
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?
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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Question
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?
Expert Solution
Step 1
Given:
First year growth rate = 43.50%
Next year growth rate = 24.50%
Constant growth rate = 6%
Last dividend = $1.40
WACC = 12.54%
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