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 Green Caterpillar Garden Supplies Inc.:

Green Caterpillar Garden Supplies Inc. $($GCGS$)$ just paid a dividend of $$3\mathrm{.}12$ per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by $12\mathrm{.}00\%$ over the next year. After the next year, though, Green Caterpillar$$s dividend is expected to grow at a constant rate of $2\mathrm{.}40\%$ per year.

Complete the following table, assuming that the market is in equilibrium, and:

$$ The risk$-$free rate $($rRF

$)$ is $3\mathrm{.}00\%$

$$ The market risk premium $($RPM

$)$ is $3\mathrm{.}60\%,$ and

$$ Green Caterpillar$$s beta is $1\mathrm{.}10$

Note: Do not round intermediate calculations.

Term

Value

$($Dollars$)$

Dividends one year from now $($D$1$

$)$

Horizon Value $($HV$)$

Intrinsic Value