A fast growing firm recently paid a dividend of $0.40 per share. The dividend is expected expected to increase ata 25 percent rate for the next four years. Afterwards, a more stable 11 percent growth rate can be assumed. If a 12.5 percent discount rate is appropriate for this stock, calculate the following: i) By applying Two-stage Growth Valuation model, what is the Terminal value? ii) What is the value of this stock?
A fast growing firm recently paid a dividend of $0.40 per share. The dividend is expected expected to increase ata 25 percent rate for the next four years. Afterwards, a more stable 11 percent growth rate can be assumed. If a 12.5 percent discount rate is appropriate for this stock, calculate the following: i) By applying Two-stage Growth Valuation model, what is the Terminal value? ii) What is the value of this stock?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A fast growing firm recently paid a dividend of $0.40 per share. The dividend is expected expected to
increase ata 25 percent rate for the next four years. Afterwards, a more stable 11 percent growth rate can
be assumed. If a 12.5 percent discount rate is appropriate for this stock,
calculate the following:
i) By applying Two-stage Growth Valuation model, what is the Terminal value?
ii) What is the value of this stock?
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