but Wait! There's More!, Inc. $($BWTM$)$ is a marketing company specializing in late$-$night

television advertising for fad items. The company has been highly successful with products

such as the "SUPER POT," an all$-$in$-$one kitchen device that novice cooks can use for

pressure cooking, braising and foot soaking. The company has a pipeline of similar products

ready for the future and, as a result, growth is expected to be $18$ percent for each of the

next four years. Following that, growth is expected to decline to $14$ percent for years $5,6$

and $7.$ Beyond year seven, BWTM is expected to settle into long$-$run constant growth of

$3\mathrm{.}5$ percent. The company's dividend for the most recent year was $75$ cents per share. The

company has a high beta of $3\mathrm{.}25.$ The current risk$-$free rate is $3\mathrm{.}5$ percent and the market

risk premium is $5\mathrm{.}7$ percent.

a$.$ Estimate the required rate of return $($rs$)$ for BWTM$.$ Then estimate the value of BWTM$\text{'}$s stock today.

Required Rate of Return $=$

Growth

Year $12345678$

Dividend

Cash Flows

Answer:

b$.$ Estimate the expected capital gain yield over the first year.

Answer: