Question

Suppose your boss believes that ultimate's annual growth rate will be only 12 percent during the next five years and that the firm's normal growth rate will be only 4 percent. Under these conditions, what is the price of ultimate's stock?

Answer 1

To calculate the price of Ultimate's stock, we need to use the Gordon Growth Model, which requires information about the dividend.

Step-by-step explanation:

To calculate the price of Ultimate's stock, we need to use the Gordon Growth Model, which is a method for valuing stocks using discounted cash flows. The formula for the Gordon Growth Model is: Stock Price = Dividend / (Required Rate of Return - Dividend Growth Rate).

Given that the firm's normal growth rate is 4 percent and the annual growth rate for the next five years will be 12 percent, we can use these values in the formula to calculate the stock price. However, we need additional information such as the current dividend or expected dividend.

Without the dividend information, it is not possible to accurately determine the price of Ultimate's stock.