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Stock Valuation - Supernormal growth

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1-A firm has a market opportunity over the next four years that will result in supernormal growth. The firm expects dividends to grow by 35 percent over each of the next two years and 20 percent over YR 3 and YR 4 before returning to a constant growth rate of six percent. The firm just paid a dividend of $2.00 and has a required return of 15 percent. (1) Calculate the expected price of the stock given the above assumptions. (2) Calculate the expected price of the stock at YR 7.

2-A firm has a market opportunity over the next four years that will result in supernormal growth. The firm expects dividends to grow by 35 percent over each of the next two years and decline linearly over YR 3 and YR 4 before returning to a constant growth rate of six percent. The firm just paid a dividend of $2.00 and has a required return of 15 percent. Calculate the expected price of the stock given the above assumptions.

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Stock Valuation - Supernormal Growth

1-A firm has a market opportunity over the next four years that will result in supernormal growth. The firm expects dividends to grow by 35 percent over each of the next two years and 20 percent over YR 3 and YR 4 before returning to a constant growth rate of six percent. The firm just paid a dividend of $2.00 and has a required return of 15 percent. (1) Calculate the expected price of the stock given the above ...

Solution Summary

1-A firm has a market opportunity over the next four years that will result in supernormal growth. The firm expects dividends to grow by 35 percent over each of the next two years and 20 percent over YR 3 and YR 4 before returning to a constant growth rate of six percent. The firm just paid a dividend of $2.00 and has a required return of 15 percent. (1) Calculate the expected price of the stock given the above assumptions. (2) Calculate the expected price of the stock at YR 7.

2-A firm has a market opportunity over the next four years that will result in supernormal growth. The firm expects dividends to grow by 35 percent over each of the next two years and decline linearly over YR 3 and YR 4 before returning to a constant growth rate of six percent. The firm just paid a dividend of $2.00 and has a required return of 15 percent. Calculate the expected price of the stock given the above assumptions.

$2.19
See Also This Related BrainMass Solution

Supernormal Growth Stock Valuation for Taussig Technologies: Calculate yields

Taussig Technologies Corporation (TTC) has been growing at a rate of 20% per year in recent years. This same supernormal growth rate is expected to last for another 2 years (g1 = g2 = 20%).

a.) If D0 = $1.60, rs = 10%, and gl = 6%, then what is TTC's stock worth today? What is expected dividend yield and its capital gains yield at this time?

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