14. As a broker, you recommend stocks to your clients. After gathering data on Furniture Factory, you have found that its most recent dividend payout ratio is 50%, and ROE is 12%. Besides, the company's dividend payment of the current year is $1.25 per share. The stock is now selling for $30 per share, and you believe that an appropriate rate of return for this stock is 9%. Write down the Excel formulas you should enter in the cells with bold borders in the table below to solve the following problems. a Calculate the sustainable growth rate of Furniture Factory b. If you expect that the dividend will grow at the sustainable growth rate into the foreseeable future, what is the highest price you would recommend purchasing this stock to your clients? . Suppose now that you believe that the company's new product line will cause much higher growth in the near future. You predict that the annual growth rate for the next three years will be 12%. After that the growth rate will decrease to the historical level, which is equal to 6%. Calculate the dividends for the next three years under the new assumptions. What is the value using the two-stage dividend model? A B 1 Furniture Factory 2 Stock Price $30.00 IS DO $1.25 4 Payout Ratio 50% 5 ROE 12% 6 Required Retum 9% 7 8 a. Sustainable Growth Rate 9 10 b. Highest Price 11 12 0. Two-Stage Growth 13 Growth in Stage 1 129 14 Growth in Stage 6% 15 Dividend in Year 1 (Di) 16 Dividend in Year 2 (D2) 17 Dividend in Year B (D3) 18 19 Stock Value in Year 3 20 Stock Value (Two-Stage Model) 14. As a broker, you recommend stocks to your clients. After gathering data on Furniture Factory, you have found that its most recent dividend payout ratio is 50%, and ROE is 12%. Besides, the company's dividend payment of the current year is $1.25 per share. The stock is now selling for $30 per share, and you believe that an appropriate rate of return for this stock is 9%. Write down the Excel formulas you should enter in the cells with bold borders in the table below to solve the following problems. a Calculate the sustainable growth rate of Furniture Factory b. If you expect that the dividend will grow at the sustainable growth rate into the foreseeable future, what is the highest price you would recommend purchasing this stock to your clients? . Suppose now that you believe that the company's new product line will cause much higher growth in the near future. You predict that the annual growth rate for the next three years will be 12%. After that the growth rate will decrease to the historical level, which is equal to 6%. Calculate the dividends for the next three years under the new assumptions. What is the value using the two-stage dividend model? A B 1 Furniture Factory 2 Stock Price $30.00 IS DO $1.25 4 Payout Ratio 50% 5 ROE 12% 6 Required Retum 9% 7 8 a. Sustainable Growth Rate 9 10 b. Highest Price 11 12 0. Two-Stage Growth 13 Growth in Stage 1 129 14 Growth in Stage 6% 15 Dividend in Year 1 (Di) 16 Dividend in Year 2 (D2) 17 Dividend in Year B (D3) 18 19 Stock Value in Year 3 20 Stock Value (Two-Stage Model)
