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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 DIVO = $1 per share. Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of.5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g. (Do not round intermediate calculations. Round your answers to 2 decimal places.) % Change in PV Sustainable Growth Rate 5.00% 6.00% Intrinsic Value (PV) 34.74 6.50% 7.00% 7.50% 8.00% 8.50% 9.00%
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