1. Constant Growth Stock Value a Constant Growth Stock Financial analysts forecast Safeco Corp. (SAF) growth for the future to be 5 percent. Safeco's recent dividend was $3.00. What is the value of Safeco stock when the required return is 14 percent?

Use equation: Constant growth model:

P0 = D0 (1 + g) (i + g)2

2. Verily Growth Verily Growth A fast-growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 20 percent rate for the next 3 years. Afterward, a more stable 10 percent growth rate can be assumed. If a 12 percent discount rate is appropriate for this stock, what is its value?

Use equations

Transcribed Image Text:

Do (1+ g1)4 = Po Do (1+1)+ Do (1 + g) + Do (1 + g) + 1+1 (1+1) + Do (1+g) (1+ g2) (i + g)2 (1 + i)4 Do (1+ g1)4 = Po Do (1+1)+ Do (1 + g) + Do (1 + g) + 1+1 (1+1) + Do (1+g) (1+ g2) (i + g)2 (1 + i)4