Considering buying stock in genetic biology systems

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On January 1, 1991, you are considering buying stock in Genetic Biology Systems (GBS), which has just announced a new type of corn that will provide nitrogen to the soil and thus eliminate the need for additional fertilizer. GBS had an EPS of $1.20 in 1990. The firm's expected annual growth rate is 50% for 1991 and 1992, 25% for the following two years, and 10% thereafter. Its dividend payout ratio is expected to be zero in 1990 and 1991, to rise to 20% for the following two years, and then to stabilize at 50% thereafter. The risk-free rate is 15%, and GBS has a beta of 1.2. The market rate of return is 16%. What is the value of GBS stock?

Reference no: EM131065322

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