Question

Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 32% for the next 2 years, 20.25% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 5.25%. The company’s last dividend was $1.75, its beta is 1.45, the market risk premium is 11.05%, and the risk-free rate is 4.75%. What is the current price of the common stock?

Can you show me how to solve using Excel?

Answer 1

Risk free rate+Beta*Risk Premium 0.0475+1.45*0.1105 0.207725 20.77% 1.75*1.32 1.75*1.32*1.32 1.75*1.32*1.32*1.2025 1.75*1.32*1.32*1.2025*1.2025 1.75*1.32*1.32*1.2025*1.2025*1.0525 (Dn/Ke-g) TERMINAL VALUE |4.64064/(0.207725-0.0525) INTRINSIC VALUE $ 2.31000 $ 3.04920 $ 3.66666 $ 4.40916 $ 4.64064 $29.89624 5.25% 20.77% Pv Factor Present Value 0.8280 $ 1.91 0.6856 $ 2.09 0.5677 $ 0.4700 $ 2.07 D5 0.4700 $ $ 14.05 22.21 Current share price $ 22.21