291 Checking Your Understanding Spreadsheet Exercises operations very carefully, analysts at Meril Link percent a year for the next eight years, followed by 16 101 The Richter Company, a technology firm, has been growing rapidly. After examining the company's estimate that dividends and carnings will grow at 29 percent growth for another six years. After 14 years, the expected growth rate is 5 percent. The risk-free rate is 5.5 percent, and the expected return on the market is 10.5 percent. The beta for Richter is 1.1, and its current dividend is $1.10. As major stock- holders, the Richter family has asked you to estimate 2. Calculate the dollar dividend for the first 14 years in cells 85 through B18 and the present value of these amounts in cells C5 through C18. Be sure to allow for the change in growth rates in Year 9. 3. In cell G19. calculate the price of the stock at the beginning of Year 15 using the then-constant growth rate of 5 percent. 4. In cell G20, discount the price found in (3) back to today using the proper number of periods for discounting 5. Sum the present value of the dividends in cell C21. The present value of the price found in (4) should be placed in C22 6. In cell C25, add the values found in (5). the stock's intrinsic value. 1. Calculate the required return in cell H2 using the CAPM. Second gr Rate 0.16 6 yrs PV of Div First gr Rate 0.22 8 yrs Dividend Normal gr RF 5.5 Exp Mk R 10.5 Beta 1.1 k 0.11 0.05 Curr Divid $1.1 Year 1 . 3 n 1 at 5 6 1 5. ac of 51 19 it ed 12 3 11 nd hc he ris Price at beginning of Year 15 - PV of Price today - Sum of PV of dividends for first 14 years + PV of price at beginning of Year 15 Sum of PV of dividends and PV of price m. nd