Question

: Module 4 Homework Assight Scee 5.0 Save Submit Assignment for Grading Problem 9.16 (Nonconstant Growth) Question 1 of 2 Check My Work (3 remaining) eBook Carnes Cosmetics Co.'s stock price is $43, and it recently paid a $1.00 dividend. This dividend is expected to grow by 18% for the next 3 years, then grow forever at a constant rate, and is 10% At what constant rate is the stock expected to grow after Year 3? Do not round intermediate calculations. Round your answer to two decimal places. % Questions Navigation Menu Check My Work remaining) Olon Key Sub Assignment for Grading Problem 9.16 (Nonconstant Growth)

Answer 1

calculation of ard growth rate's Stock price - present value of dividends + present value of Terminal calculation of present value value. of dividends: last paid dividend (Do) = 41 1st year dividend (0) - $1(1+18%) = $1.18 and year dividend (2) - $1.18(14 18%) = $1.39 year dividend (D3) $1-3911718%) - $1.64. present value of dividends so given rs = 107 $ 1.64 $1.39 &1.18 present value (1+0.10) (1 + 0.10)? &3.45 Calculation of Terminal values Terminal value (ke-9) $1.64 (149) given go g 10% -9 + (140-1033 D3 (149) $43 so Terminal value given stock price Х 164(149) $43 - $3.45t (10%-9) [140.103 $43-3.345 $164 (149) X 0.751 i 104-9) 19= 6.68%