Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Now lets go back to the perpetual operation assumption. Also, imagine that I can grow my revenue and income 5 % annually by expanding into
Now lets go back to the perpetual operation assumption. Also, imagine that I can grow my revenue and income annually by expanding into BOWSA and YOWSA blackberry and yucca flavors What would be a fair stake for Warren Buffet in this case assuming that we assume that the initial $ million on advertising will allow us to launch the follow up flavors without additional ads. Hint for growth stocks the present value of dividends is equal to the initial dividend divided by the discount rate minus the growth rate. Hence, its Div as opposed to Div for the no growth valuation. This is a handy math fact that is not too hard to prove, so it's useful for valuing stocks that tend to grow in the real world But it does require assuming perpetual growth forever so valuation is harder practice a mix of growth in the early life cycle of a company followed by steady dividends or slower growth or even declining profits after the mature phase
None of these are accurate
PV of dividends is $ million so Buffet would give me $ million for a stake
PV of dividends is $ million so a stake makes sense
PV of dividends is still $ million so no change
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started