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Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the...

Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the next four years (affecting D1, D2, D3, and D4). Beginning in year five, the growth rate is expected to drop to 3.3 percent per year and last indefinitely. If GRF just paid a $5.00 dividend and the appropriate discount rate is 19.5 percent, then what is the value of a share of GRF? Enter your answer to two decimal places.

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Answer #1
Year Dividend Dividend PV factor Present Values
1 5*1.25     6.2500 0.83682          5.23
2 6.25*1.25     7.8125 0.700268          5.47
3 7.812*1.25     9.7656 0.585998          5.72
4 9.765*1.25 12.2070 0.490375          5.99
4 77.838 0.490375        38.17
Total PV        60.58
Current Dividend        12.2070
Rate of return 19.50%
Growth Rate 3.30%
Horizon value =Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate)
'12.207*(1+0.033)/(0.195-0.033)
77.838
Total PV of 60.57 is the solution.
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