Purchase Solution

Supernormal Growth Valuation

Not what you're looking for?

Ask Custom Question

A company currently pays a dividend of $2 per share, D0=2. It is estimated that the company's dividend will grow at a rate of 20 percent per year for the next 2 years, then the dividend will grow at a constant rate of 7 percent thereafter. The company's stock had a beta equal to 1.2, the risk free rate is 7.5 percent, and the market risk premium is 4 percent.

What would you estimate is the stock's current price?

Purchase this Solution
Solution Summary

The solution explains how to determine the current price of stock under supernormal growth valuation

Solution Preview

The current price of the stock is the present value of all dividends. In this case we have to use the two stage model. In the first stage the dividends grow at 20% and then at 7% when the constant ...

Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

View More Free Quizzes
Related BrainMass Solutions

  • Supernormal Growth Stock Valuation

    340539 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.

  • Stock Valuation - Supernormal growth

    Stock Valuation - Supernormal Growth 1-A firm has a market opportunity over the next four years that will result in supernormal growth.

  • value of the combined firm

    Both have revenues of $1500, operating margin of 15%, a tax rate of 40%, investment rate of 10%, growth rate of 11%, 5 years of supernormal growth followed by zero growth thereafter, and a 9% cost of capital.

  • STOCK VALUATION TODAY AND IN THE FUTURE

    Stock Valuation: Dividend values in succeeding years; current stock value; calculate expected rate of return; stock value with constant growth; stock value with non-constant growth; dividend yield rate; capital gain yield rate See attached word

  • Current value of the stock

    Time value of Money, valuation and Rates of Return Stephens Development Company paid a dividend of$1.12 over the last 12 months. the dividend is expected to grow at a rate of 20% over the next 3 years(supernormal growth).

  • calculate the cost of capital

    Both firms have the same characteristics of Walton Company(revenues of $1000, operating margin of 15%, a tax rate of 40%, investment rate of 8%, growth rate of 18%, and 5 years supernormal growth, and zero growth thereafter), except Kubrick Company has

  • Finance Questions

    One category of nonconstant growth stock is a "supernormal" growth stock which has one or more years of growth above that of the economy as a whole, but at some point the growth rate will fall to the "normal" rate. 12.

  • Supernormal Growth Firm

    155372 Can you provide an example of a supernormal growth firm? Can you provide an example of a supernormal growth firm? Google is an example of a supernormal growth firm.

  • Current value of the stock

    258567 Time Value of Money, valuation, Rates of Return Stephens Development Company paid a dividend of$1.12 over the last 12 months. the dividend is expected to grow at a rate of 20% over the next 3 years(supernormal growth).

View More Related Solutions