Question

You are considering buying stock in HUANG. , San Angel company that provides PPO medical services. The cand per year for the following the years as competitors enter the market and finally sew to a 3 per year of growth the to pay for a share of HUANG' Stock? 1.712 i d o e was 8.00 and is expected to increase by 10 that of the economy over you require a 16 per year for two Growth will then slow to to return what is the most you should be wing 5.20 540 128.047 $29.147

Answer 1

D0 = $ 3

D1 = 3* (1+10%) = 3* 1.1 = $ 3.3

D2 = 3.3*(1+10%) = $ 3.63

D3 = 3.63*(1+5%) = 3.8115

D4 = 3.8115*(1+5%) = 4.002

D5 = 4.002*(1.05) =4.202

Cost of capital = 16%

TerMinal Value = 4.202*(1+3%)/(16%- 3%) = $ 33.29

Stock Price =3.3/1.16 + 3.63/1.16^2 + 3.8115/1.16^3 + 4.002/1.16^4 + 4.202/1.16^5 + 33.29/1.16^5

= 28.047

So the answer is C)