Question: Question: There is a stock which grows at 100% per year for 2 years. After that, it grows at a rate we need to compute

Question:

There is a stock which grows at 100% per year for 2 years. After that, it grows at a rate we need to compute per year forever. The firm has a net profit margin and an asset turnover ratio of .10 and 3 respectively. Its tax rate is .3, its Bheta unlevered is .9, and the debt to equity ratio is 2. Also, the risk free rate is .04 and the risk premium is 5%. The dividend presently is $1 and the EPS (Earnings Per Share) is $1.8. How much would you pay for the stock?

This problem was solved before, but my professor added the EPS today, which is $1.8. I would really appreciate if you can please show your work (step by step). The more work that you show, it will help me to better understand how to solve this problem. I need to solve this question for a take home exam, so I would really appreciate any help. Thanks in advance.

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