7. Nonconstant growth stock As companies evolve, certain factors can dilive sudden growth. This may...
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7. Nonconstant growth stock As companies evolve, certain factors can dilive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the company's expected growth rate to increase or decrease, thereby affecting the results of the valuation model. For companies in such situations, you would refer to the nonconstant growth model for the valuation of the company's stock. Consider the case of Purple Whale Foodstulfs inc:: Purple Whale Foodstuffs ine. (PWFI) Just paid a dividend of \$2.40 per share. The company expects the coming year to be very proftable, and its dividend is expected to grow by 12.00% over the next year. After the next yeac, though, Purple Whale's dividend is expected to grow at a constant rate of 2,40% per year. Complete the following table, assuming that the market is in equlibrium, and: Note: Do not round intermediate calculations. Note: Do not round intermediate calculations: Which of the following most closely approximates the expected dividend yield for Purple whale's stock today? 7.16%6.72%6.56%5.38%
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