Ch.7: HW2 7. Nonconstant growth stock As companies evolve, certain factors can drive sudden growth. This may lead to a perfod of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries Portman Industries 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 16.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 3.20% per year, (Note: Do not round your intermediate calculations.) Term Dividends one year from now (D) Value $3.6192 Hortzon venture (6) (Note: Rounded to four decimal places) (Note: Rounded to two decimal places) (Note: Rounded to two decimal places) Intrinsic value of Portman's stock The risk-free rute (Du) is 400%, the market riak premium (RPM) is 4.80%, and Portman's beta is 1.80 Assuming that the market is in equilibrium, use the information just given to complete the table What is the expected dividend yield for Portman's stock today? 9.15% 7.55% 10.30% 9.449 Now let's apply the results of your calculations to the following situation Portman has 600,000 shares outstanding, and Judy Davis, an investor holds 9,000 shares at the current price (computed above). Suppose Portman is considering sung 75,000 new shares at a price of $37.59 per share the new shares are slid to outside Investors, by how much will Judy's Investment in Portman Industries be dhuted on a per-share basis? $0.99 per stare O $1.34 per share $0.54 per share $0.64 per share Thus, Judy investment will be diluted, and Judy will experience a total Save & Continue Continue without saving