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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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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