n (Basic) ent: Stock Valuation (Basic) Assnigament Score: 60.00 Sive Check My Wo

Question

n (Basic) ent: Stock Valuation (Basic) Assnigament Score: 60.00 Sive Check My Work (so remaining) Supernormal Growth Stock Valuation Assume that an average firm in your company's Industry is expected to grow at a constant rate of g% and has a dividend yield of %. Your company is of average risk, but it has Just successfully completed some RAD work that leads vou to expect that its earnings and dividends wi" row at a rate of 50% (Di-Do(1 + 0)-Do(150)) this year, and 25% the tollowing year, after which growth should maten the 9% industry average rate. The last dividend paid (De) was 12.00, what is the value per share of your firm's stock today? (Hint: Use Equation to find the required rate of return.) Do not round intermediate calculations, Round your answer to the nearest cent

Explanation / Answer

terminal value =D2(1+g)/(Rs-g)

        =3.75(1+.09)/(.17-.09)

            =3.75*1.09 /.08

           =51.0938

**Rs= dividend yield +g

         = 8+9

       = 17%

year Dividend PVF 17% D*PVF 1 2(1+.50)=3 .85470 2.5641 2 3(1+.25)=3.75 .73051 2.7394 2,Terminal value 51.0938 .73051 37.3245 Value of stock today 42.63

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