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Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects
Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was D0=$1 per share. a. What are the expected values of D1,D2,D3, and D4 ? (Round your answers to 3 decimal places.) b. What is the expected stock price 4 years from now? The discount rate is 10%. (Do not round intermediate calculations. Round your answer to the nearest cent.) c. What is the stock price today? (Do not round intermediate calculations. Round your answer to the nearest cent.) d. Find the dividend yield, D1/P0. (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. What will next year's stock price, P1, be? (Do not round intermediate calculations. Round your answer to the nearest cent.) f. What is the expected rate of return to an investor who buys the stock now and sells it in 1 year? (Do not round intermediate calculations.)
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