A stock, which currently does not pay a dividend, is expected to pay its first dividend of $2.00 per share in six years. After the dividend is established, it is expected to grow at an annual rate of 20 percent per year for the following three years and then grow at a constant rate of 5 percent per year thereafter. Assume that the risk-free rate is 5.5 percent, the market risk premium is 4 percent, and that the stock’s beta is 1.5. What is the expected price of the stock today?

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

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yes the correct answer was

b.the increased supply will create a surplus.