a. Return to the previous problem, and compute the value of Better Mousetraps for assumed sustainable growth

Question:

a. Return to the previous problem, and compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of .5%.

b. Compute the percentage change in the value of the firm for each 1 -percentage-point increase in the assumed final growth rate, g.

c. What happens to the sensitivity of intrinsic value to changes in g? What do you conclude about the reliability of the dividend growth model when the assumed sustainable growth rate begins to approach the discount rate?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...