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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