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Problem 7-34 Nonconstant Growth (LO2) Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As
Problem 7-34 Nonconstant Growth (LO2) 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 DIVO = $1 per share. Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of 5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Sustainable Growth Rate % Change in PV Intrinsic Value (PV) 34.74 5.00% 6.00% % % 6.50% 7.00% 7.50% % % % 8.00% 8.50% % 9.00% %
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