- 17 To Increase The Equity Portion Of Your Portfolio You Are Analyzing The Stock Of Firm Yyy Inc The Firm Has Just Pa 1 (70.74 KiB) Viewed 21 times
17. To increase the equity portion of your portfolio, you are analyzing the stock of firm YYY, Inc. The firm has just paid a dividend of $3.47. You have looked at the historical financial statements of the firm and have identified that it is a market leader in its industry and will remain so for the next few years. Your analyses and forecasts suggest that the industry will grow by 6% next year. However, being a market leader, YYY's cash flows, including the dividends paid, will grow at a rate of 25% next year and then 30% for the subsequent two years. After that, you expect the competitors to catch up, driving the firm's growth rate to an industry average of 4% per year forever. To account for the firm's riskiness, you think a discount rate of 12% is appropriate. Based on your analysis, at what price should the stock of YYY be trading? a. $81.41 b. $60.61 c. $59.59 d. $50.44 e. None of the above