In January 2022, Peter Parker, the chief financial officer for Marvell Technology Group, was given the task of assessing the impact of a proposed risky investment on the firm's stock value.

To perform the necessary analysis, Peter gathered the following information on the firm's stock.

During the immediate past 5 years (2017-2021), the annual dividends paid on the firm's

common stock were as follows

Yogr

2021

2020

2019

2018

2017

Dividend per share

$1.90

1.70

1.55

1.40

1.30

The firm expects that without the proposed investment, the dividend in 2022 (end-of-year) will be $2.09 per share and the historical annual rate of growth (rounded to the nearest whole percent) will continue in the future. Currently, the required return on the common stock is 14% Peter's research indicates that if the proposed investment is undertaken, the 2022 dividend will rise to $2.15 per share and the annual rate of dividend growth will increase to 13%. He feels that in the best case, the dividend would continue to grow at this rate each year into the future and that in the worst case, the 13% annual rate of growth in dividends would continue only through 2024, and then, at the beginning of 2024, would return to the rate that was experienced between 2017 and

2021. As a result of the increased risk associated with the proposed risky investment, the required return on the common stock is expected to increase by 2% to an annual rate of 16%, regardless of which dividend growth outcome occurs.

Armed with the preceding information, Peter must now assess the impact of the proposed risky investment on the market value of Marvell's stock. To simplify his calculations, he plans to round the historical growth rate in common stock dividends to the nearest whole percent.

Required:

A. Find the current value per share of Marvell's common stock.

B. Find the value of Marvell's common stock in the event that it undertakes the proposed risky investment and assuming that the dividend growth rate stays at 13% forever. Compare this value to that found in part A. What effect would the proposed investment have on the firm's stockholders? Explain.

C. On the basis of your findings in part B, do the stockholders win or lose as a result of undertaking the proposed risky investment? Should the firm do it? Why?

D. Rework parts B and C assuming that at the beginning of 2025 the annual dividend growth rate returns to the rate experienced between 2017 and 2021 (using variable growth model).

E. Using regression analysis, Peter estimated the beta of Marvell's common stock to be 1.6, with a 3-month T-Bill rate of 3% and the S&P500 Index return of 8%. Based on the