Question

Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the next four years (effecting D1, D2, D3, and D4). Beginning in year five, the growth rate is expected to drop to 7 percent per year and last indefinitely. If GRF just paid a $2.00 dividend and the appropriate discount rate is 15 percent, then what is the value of a share of GRE?

SOLUTION Excel

Answer 1

We will be using the dividend discount model to arrive at the instrinsic value of GRE
The instrinsic value of equity is equal to the present value of the dividends expected from the company
Following information is provided :
Dividend paid	$2
Calculation of dividend expected
Year	Growth rate	Dividend Amt (formula)	Dividend Amt.
1	25%	=2*(1+0.25)	2.50
2	25%	=D256*(1+C257)	3.13
3	25%	=D257*(1+C258)	3.91
4	25%	=D258*(1+C259)	4.88
5	7%	=D259*(1+C260)	5.22
The growth rate will be 7% thereafter indifintely
Hence, the Terminal Value (TV) in year 5 = Dividend expected next year/ (Discount rate - growth rate)
=(5.22*1.07)/(0.15-0.07)
69.82
Calculation of equity of the company
We will discount all the dividends and the terminal value by 15% to arrive at the present value, which will be the intrinsic value of equity
Year	Dividend/TV	DF @ 15% (formula)	DF @ 15%	PV = Dividend & TV * DF
1	2.50	=1/(1.15)^1	0.870	2.174
2	3.13	=1/(1.15)^2	0.756	2.363
3	3.91	=1/(1.15)^3	0.658	2.568
4	4.88	=1/(1.15)^4	0.572	2.792
5	5.22	=1/(1.15)^5	0.497	2.598
5	69.82	=1/(1.15)^5	0.497	34.713					jeff jeffy Next > < Previous Related Solutions Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the... Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the next four years (affecting D1, D2, D3, and D4). Beginning in year five, the growth rate is expected to drop to 2.4 percent per year and last indefinitely. If GRF just paid a $4.00 dividend and the appropriate discount rate is 17.5 percent, then what is the value of a share of GRF? Enter your answer to two decimal places. Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 25 percent... Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 25 percent for the next three years, with the growth rate falling off to a constant 4.5 percent thereafter. If the required return is 10.5 percent and the company just paid a dividend of $2.85, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bruin Co. is growing quickly. Dividends are expected to grow at a rate of 25 percent... Bruin Co. is growing quickly. Dividends are expected to grow at a rate of 25 percent for the next three years, with the growth rate falling of to a constant 5 percent thereafter. If the required return is 15 percent and the company just paid a $7.16 dividend, what is the share price at the end of supernormal growth (at Year 3)? a. 146.84 b. 97.89 c. 75.18 d. 139.84 e. 93.23 Please show solutions using Excel The ABC Company is expected to have a constant annual growth rate of 5 percent. It... The ABC Company is expected to have a constant annual growth rate of 5 percent. It has a price per share of P32 and pays an expected dividend of P2.40. Its competitor, the DEF Company is expected to have a growth rate of 10%, has a price per share of P72, and pays an expected P4.80/share dividend. The required rates of return on equity for the two companies are: A. B. C. D. ABC 13.8% 9.6% 12.5% 16.2% DEF 15.4%... Wildhorse, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the... Wildhorse, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.45 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 21 percent,... Ivanhoe, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the... Ivanhoe, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.63 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 17 percent,... Sheridan, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the... Sheridan, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.75 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 15 percent,... Blossom, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the... Blossom, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.25 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 15 percent,... Nonconstant growth: Tre-Bien, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent... Nonconstant growth: Tre-Bien, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.45 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is... 2. Wildhorse, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for... 2. Wildhorse, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.35 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 22... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions ***Convert the C++ to Python*** #include <iostream> using std::cout; using std::cin; using std::endl; int charClass; char... Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a... The following costs were incurred for the single product produced during the first year of operations... Non-constant growth model: Do=$2.00 required return on equity= 5% g= 9% n=1,2 g=7% n=3,4 g=3% n=5... . Find all x ∈ Z143 such that x2Ξ 7 (mod 143). Please explain all steps... #Python: A palindrome is a sequence of characters that reads the same backwards as forwards. For... Explain an example in which a variable has two different addresses at different places in a... ADVERTISEMENT About @ 2020 WizEdu