Question

Management of Blossom, a biotech firm, forecasted the following growth rates for the next three years: 35 percent, 28 percent, and 22 percent. Management then expects the company to grow at a constant rate of 9 percent forever. The company paid a dividend of $1.65 last week. If the required rate of return is 15 percent, what is the value of this stock? (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)

Answer 1

Answer:

Followsare the solution to this question:

Explanation:

using formula:

$\text{Recent dividend} = \text{Dividend of the previous year} \times (1+\text{growth rate})^{\text{(current year)}} \\\\\text{Total value = dividend + horizon value}$

$\text{Horizon value}= \frac{\text{current year 3} \times \text{(1+long-term growth rate)}}{\text{(Long-run growth rate required)}}$

$\text{Reduced price factor}=(1 +\text{Required rate})^\text{corresponding time}$

$\text{Value discounted} =\frac{ \text{total value}}{ \text{factor of discount}}$

please find solution file: