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Category > Business & Finance Posted 17 Jun 2017 My Price 8.00

Revarop, Inc., is a fast-growth company that is expected t

Revarop, Inc., is a fast-growth company that is expected to grow at a rate of 23 percent for the next four years. It is then expected to grow at a constant rate of 6 percent. Revarop’s first dividend, of $4.45, will be paid in year 3. If the required rate of return is 14 percent, what is the current value of the stock if dividends are expected to grow at the same rate as the company?


  • g for next 4 years 23%      
    g after 4 years 6%      
    Dividend at end of year 3 4.45      
    Required rate 14%      
             
             
    Particulars Time PVF Amount PV
    Cash Inflows 3.00 0.6750 4.45 3.00
    Cash Inflows(4.45*1.23) 4.00 0.592 5.47 3.24
    Cash Inflows(Price at end of year 4) 4.00 0.592 72.50 42.93
    Present Value of Stock       49.17
            -
             
    Working Notes        
    Price at end of Year 4 = D5/(ke-g)        
    Price at end of Year 4 = 5.47(1.06)/(14%-6%)        
    Price at end of Year 4 =5.798/(8%)        
    Price at end of Year 4 =72.5        
      PVF Time    
    1.14 0.877192982 1    
    1.14 0.769467528 2    
    1.14 0.674971516 3    
    1.14 0.592080277 4

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Status NEW Posted 17 Jun 2017 01:06 PM My Price 8.00

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