Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

D Variable Growth The firm's dividends are expected to grow at g 15% until t5 yrs. At the start of year four, growth slows

image text in transcribed

D Variable Growth The firm's dividends are expected to grow at g 15% until t5 yrs. At the start of year four, growth slows to gs= 3.5%. The stock just paid a dividend Div0 = $1.50 Assume a market capitalization rate of k = 11.50% DO g1 $1,50 15,00% g1 duration 5 Years 92 k PO 3,50% 11,50% $55,0005 E FCFE 0 $1,5000 1 2 3 4 5 $1.7250 $1.9838 $2,2813 $2,6235 $1,7250 $1,9838 $2,2813 $2.6235 $3,0170 $43,3699 $46,3869 6 $3.4696 Suppose FCFE = $1,200,000 in year 1. The growth rate for Years 2 and 3 is 30%. Years 4-6 is 10%. The growth rate is expected to normalize to 3% afterwards. If the required rate of return is 15% What is the value of this stock if there are 750,000 outstanding shares. FCFE1 $1,2000 g Yr 2-3 years 30.00% g Yr 4-6 years 10,00% g 3,00% 15,00% k PVFCFE # of shares Stock Price $4,8320 750 000 $6.44 1 2 3 4 5 6 7 1,2000 1,5600 2,0280 2,2308 2,4539 2,6993 2,7802 23,1687 1.0435 1,1796 1,3334 1,2755 1,2200 11.1834

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance An Integrated Planning Approach

Authors: Ralph R Frasca

8th edition

136063039, 978-0136063032

More Books

Students also viewed these Finance questions

Question

* What is the importance of soil testing in civil engineering?

Answered: 1 week ago

Question

Explain the concept of shear force and bending moment in beams.

Answered: 1 week ago