Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20% per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5%. The most recent annual dividend was DIV 0= $1 per share. (15 points)
a. What are the expected values of DIV 1, DIV 2, DIV 3, and DIV 4?
b. What is the expected stock price 4 years from now? The discount rate is 10%.
c. What is the stock price today?
d. Find the dividend yield, DIV 1/ P 0 .
e. What will next year’s stock price, P1, be?
f. What is the expected rate of return to an investor who buys the stock now and sells it in 1 year?