Problem 8-13 (Nonconstant Growth Stock Valuation) Question 1 of 3 Check My Work (2 remaining) eBook Problem Walk-Through Nonconstant Growth Stock Valuation Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 80% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 8% per year. If the required return on the stock is 18%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Do not round intermediate calculations. Round your answer to the nearest cent. eBook Problem Walk-Through Value of Operations Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 9%. The company's weighted average cost of capital is 13%. a. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent. b. Calculate the value of Kendra's operations. Do not round intermediate calculations. Round your answer to the nearest cent. Constant Growth Stock Valuation Investors require a 13% rate of return on Brooks Sisters' stock (rs - 13%). a. What would the estimated value of Brooks' stock be if the previous dividend was Do - $1.50 and if investors expect dividends to grow at a constant annual rate of (1) - 7%, (2) 0%, (3) 4%, or (4) 10%? Do not round intermediate calculations. Round your answers to the nearest cent. 1. $ 2. $ 3. $ 4. $ b. Using data from Part a, what is the constant growth model's estimated value for Brooks Sisters' stock if the required rate of return is 13% and the expected growth rate is (1) 13% or (2) 17%? Are these reasonable results? Round your answers to the nearest cent. Use a minus sign to enter negative values, if any. If your answer is zero, enter "o". 1. Po: $ -Select- 2. Po: $ -Select- c. Is it reasonable to expect that a constant growth stock would have 0 >rs? -Select