# bff5040tute-5answer - T4Q1 a D4 = 10 x 1.153 x 1.12 x 0.5 =...

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T4Q1 a. D 4 = 10 x 1.15 3 x 1.12 x 0.5 = \$8.06 P 3 = 8.06 / (1.4 x (8% - 5%) + 5%) = \$87.6 V = \$87.6 / (1.4 x (8% - 5%) + 5% + 1) 3 = \$67.28 b. Multistage growth models allow dividends per share to grow at several different rates as the firm matures. Many analysts use three-stage growth models. FCFE is particularly useful for firms that pay no dividends, for which the dividend discount model would be difficult to implement. But free cash flow models may be applied to any firm and can provide useful insights about firm value beyond the DDM. c. If a stock is underpriced, its expected rate of return is higher than market capitalization rate. d. p = 16 x 10 = \$160 e. The valuation based on the PE ratio represents expectation of market from perspective of taking all earning as dividend. However, the DDM model take plowback ratio into account, which is more reasonable. f. Because takeover means possession of the GG corporation. The price using dividend without reinvestment should be about \$173, so it is not a fair offer.

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