Forecasted growth rate in earnings per share decreases

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Reference no: EM131822525

1. Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the next four years (affecting D1, D2, D3, and D4). Beginning in year five, the growth rate is expected to drop to 3.5 percent per year and last indefinitely. If GRF just paid a $8.00 dividend and the appropriate discount rate is 19.3 percent, then what is the value of a share of GRF? Enter your answer to two decimal places.

2. Which of the following statements is FALSE?

A. If the forecasted growth rate in Earnings per Share (EPS) decreases, this leads to a decrease in share price valuation.

B. The growth rate in EPS is a function of the Dividend Payout Ratio (DPR), amongst other things.

C. Required return on equity is usually less than that for debt for any given firm.

D. The dividend growth model is used for share valuation purposes.

Reference no: EM131822525

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