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7. Nonconstant growth stock As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable growth. This
7. Nonconstant growth stock As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable growth. This would cause the company's expected growth rate to increase or decrease, thereby affecting the results of the valuation model. For companies in such situations, you would refer to the nonconstant growth model for the valuation of the company's stock. Consider the case of Magic Milling Company Magic Milling Company (MMC) just paid a dividend of $3.12 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 12.00% over the next year. After the next year, though, Magic Milling's dividend is expected to grow at a constant rate of 2.40% per year Complete the following table, assuming that the market is in equilibrium, and: Term Value Dividends one year from now (D1) Horizon Value (HV) Intrinsic Value . The risk-free rate (RF) is 3.00% The market risk premium (RPM) is 3.60%, and Magic Milling's beta is 1.40 What is the expected dividend yield for Magic Milling's stock today? 5.51% 5.95% 0 5.64% 4.51%
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