Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIVO = $1 per share. Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of 0.5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g, using a required rate of return of 10%. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Sustainable Growth Rate 5.00% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% Intrinsic Value (PV) 34.74 42.53 48.09 55.51 65.00 81.48 107.44 159.37 % Change in PV 22.42% % % %
Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIVO = $1 per share. Compute the value of Better Mousetraps for assumed sustainable growth rates of 6% through 9%, in increments of 0.5% and compute the percentage change in the value of the firm for each 1 percentage point increase in the assumed final growth rate, g, using a required rate of return of 10%. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Sustainable Growth Rate 5.00% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% Intrinsic Value (PV) 34.74 42.53 48.09 55.51 65.00 81.48 107.44 159.37 % Change in PV 22.42% % % %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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