Question
1.Small Fry, Inc. has just invented a potato chip that looks and tastes like a French fry. Given the phenomenal market response to this product
1.Small Fry, Inc. has just invented a potato chip that looks and tastes like a French fry. Given the phenomenal market response to this product Small Fry is now reinvesting all of its earnings to expand its operations. The earnings per share are expected to be $2 at the end of this year, and are expected to grow at a rate of 20% per year until the end of year 4. Then its growth will slow to a long-run rate of 5% due to product market competition. The company will start to pay out 60% of its earnings every year as dividends when the growth slows down (i.e., starting to pay out dividends from year 5). If Small Frys equity cost of capital is 8%, what is the value of a share today? Please explain step by step on how to do this problem.
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