The following information represents the base case for a stock: Do-$1.50, r=10%, and g= 2% is...
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The following information represents the base case for a stock: Do-$1.50, r=10%, and g= 2% is the steady-state growth rate. This stock does NOT have high growth stage. Calculate the stock's value. Part II: ROW 2-5 Now calculate the value of the stocks while assuming there is a high growth rate before the steady state begins. ROW Part III. 1. 1 2 3 4 5 2. 3. 4. 5. Do $1.50 $1.50 $1.50 $1.50 $1.50 R 10% 10% 10% 10% 10% HIGH GROWTH STAGE: G AND NUMBER OF PEROIDS none 5% for 2 periods 5% for 4 periods 10% for 2 periods 10% for 4 periods STEADY STATE GROWTH RATE 2% 2% Answer the following questions based on your answers above. In general, how does a period of positive non-constant growth higher than the constant growth rate affect the stock's value? Why? How would negative non- constant growth affect the stock's value? Why? How does the number of years of non-constant growth affect value? Why? How does the rate of growth affect value? Why? How do the number of years of non-constant growth combined with the rate of growth affect value? What factors may cause a stock to have positive or negative non-constant growth? Can these factors last forever? 2% 2% 2% STOCK VALUE The following information represents the base case for a stock: Do-$1.50, r=10%, and g= 2% is the steady-state growth rate. This stock does NOT have high growth stage. Calculate the stock's value. Part II: ROW 2-5 Now calculate the value of the stocks while assuming there is a high growth rate before the steady state begins. ROW Part III. 1. 1 2 3 4 5 2. 3. 4. 5. Do $1.50 $1.50 $1.50 $1.50 $1.50 R 10% 10% 10% 10% 10% HIGH GROWTH STAGE: G AND NUMBER OF PEROIDS none 5% for 2 periods 5% for 4 periods 10% for 2 periods 10% for 4 periods STEADY STATE GROWTH RATE 2% 2% Answer the following questions based on your answers above. In general, how does a period of positive non-constant growth higher than the constant growth rate affect the stock's value? Why? How would negative non- constant growth affect the stock's value? Why? How does the number of years of non-constant growth affect value? Why? How does the rate of growth affect value? Why? How do the number of years of non-constant growth combined with the rate of growth affect value? What factors may cause a stock to have positive or negative non-constant growth? Can these factors last forever? 2% 2% 2% STOCK VALUE
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1 Stocks value is the present value of the future cash flows ie dividends Higher the dividends highe... View the full answer
Related Book For
Elementary Statistics in Social Research Essentials
ISBN: 9780205638000
3rd edition
Authors: Jack A. Levin, James Alan Fox
Posted Date:
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