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2. (15 Points) DesignLogic is a fast growing company that distributes 20% of its earnings...

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2. (15 Points) DesignLogic is a fast growing company that distributes 20% of its earnings as dividends. An institutional investor plans to hold the company stock for 10 years. The investor seeks 15% rate of return, and expects the stock to be traded at 30 times earnings at the end of 10 years. Current eaning is $4/share (Eo=41 Earning with grow at a rate of 21% during the first year, and decline by 3% every year during the following 4 years reaching 9% in year 5, The growth rate will continue to be 9% for the remaining 5 years. a. Use the combined earnings and dividend model to determine the current value of the stock b. How much is the growth rate after year 10? Answer Earnings Dividend Future $ 4.00 Time D+FP PV 0 N/A N/A 0.21 0.09 0.09 8 10 Stock Value

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