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Better Mousetraps has come out with an improved product, and the world is beating a path...

Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV0 = $1 per share.

Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of .5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Sustainable Growth Rate Intrinsic Value (PV) % Change in PV
5.00% 34.74
6.00% %
6.50% %
7.00% %
7.50% %
8.00% %
8.50% %
9.00% %

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I have answered the question below using excel and have attached the image below.

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Answer:

Sustainable growth rate

Intrinsic value (PV)

5.00%

34.74

6.00%

42.53

6.50%

48.09

7.00%

55.51

7.50%

65.9

8.00%

81.48

8.50%

107.44

9.00%

159.37

jeff jeffy answered 1 year ago
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