The analyst who supplied you with the information in Problem 1 has just revised her forecast. She now realizes that the growth rate of 10% can continue for only five years, after which the company will have a long-term growth rate of 6%. Furthermore, at the end of the five years, she expects the company's payout rate to increase from its present 30% up to 50%. What value would you assign to the company?
In Problem 1
A firm has just paid (the moment before valuation) a dividend of 55¢ and is expected to exhibit a growth rate of 10% into the indefinite future. If the appropriate discount rate is 14%.