Question: Assume that the average firm in your company s industry is
Assume that the average firm in your company’s industry is expected to grow at a constant rate of 6 percent, and its dividend yield is 7 percent. Your company is considered as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50 percent [D1 = D0 (1 + gsuper) D0 (1.50)] this year and 25 percent the following year. After that period, growth should match the 6 percent industry average rate. The last dividend paid (D0) was $1. What is the value per share of your firm’s stock?
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