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Use the following information to answer Questions 9 and 10: An analyst gathered the following information...

Use the following information to answer Questions 9 and 10: An analyst gathered the following information regarding Beta Corporation: •Current dividend per share = $2.18 •Next year's expected dividend growth rate of 30% is expected to decline linearly over the following 8 years to a long-term constant growth rate of 6%. •Required rate of return on the company's stock is 11%.

Question: The value of the company's stock today is closest to: Select one: a. $41.86 b. $98.54 c. $88.07

Question text What proportion of the stock's value is attributable to the extraordinary growth? Select one: a. 41.86% b. 42.47% c. 47.52%

Solutions

Expert Solution

lINEARLY DECREASING GROWTH RATE = (20-6) / 10 = 2.6. So, decrease rate by 2.4 % every year till it reaches 6%

30% 27.60% 25.20% 22.80% 20.40% 18.00% 15.60% 13.20% 10.80% 8.40% 6.00%
Year 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year 11
Dividend Per share                                         2.18           2.83           3.62           4.53           5.56           6.69           7.90           9.13         10.34         11.45         12.41                     13.16
263.1909 TV AT YEAR 10
Dividend + tv 2.18 2.834 3.616184 4.527462 5.559724 6.693907 7.898811 9.131025 10.33632 11.45264 275.6056
NPV 36.20

jeff jeffy answered 1 year ago
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