Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 28% for the next 2 years, 21.90% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 5.00%. The company’s last dividend was $0.85, its beta is 1.25, the market risk premium is 7.00%, and the risk-free rate is 6.50%. What is the current price of the common stock?
Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 28% for the next 2 years, 21.90% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 5.00%. The company’s last dividend was $0.85, its beta is 1.25, the market risk premium is 7.00%, and the risk-free rate is 6.50%. What is the current price of the common stock?
Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 21P
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Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 28% for the next 2 years, 21.90% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 5.00%. The company’s last dividend was $0.85, its beta is 1.25, the market risk premium is 7.00%, and the risk-free rate is 6.50%. What is the current price of the common stock?
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