Question
Nonconstant Growth. Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the
Nonconstant Growth. 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 DIV0 = $1 per share. (LO7-2)
a. What are the expected values of: (i) DIV1, (ii) DIV2, (iii) DIV3, and (iv) DIV4?
b. What is the expected stock price 4 years from now? The discount rate is 10%.
c. What is the stock price today?
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