4. Eaton Corporation just completed an IPO (Initial Public Offering) in which its common stock sold for $4.8082 per share (shares can sell at hundredths of a cent). Your analysis tells you that Eaton is expected to pay a per share dividend of $1 at time five (t=5), followed by a $1.50 dividend at time six (t=6) and then grow at a constant annual rate forever (in perpetuity). If investors require and 18% annual rate of return on Eaton's stock, what must be the constant perpetual growth rate that Eaton's investors expect?
4. Eaton Corporation just completed an IPO (Initial Public Offering) in which its common stock sold for $4.8082 per share (shares can sell at hundredths of a cent). Your analysis tells you that Eaton is expected to pay a per share dividend of $1 at time five (t=5), followed by a $1.50 dividend at time six (t=6) and then grow at a constant annual rate forever (in perpetuity). If investors require and 18% annual rate of return on Eaton's stock, what must be the constant perpetual growth rate that Eaton's investors expect?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:**Problem: Eaton Corporation IPO Analysis**
Eaton Corporation just completed an IPO (Initial Public Offering) in which its common stock sold for $4.8082 per share (shares can sell at hundredths of a cent).
Your analysis tells you that Eaton is expected to pay a per share dividend of $1 at time five (t=5), followed by a $1.50 dividend at time six (t=6) and then grow at a constant annual rate forever (in perpetuity).
If investors require an 18% annual rate of return on Eaton's stock, what must be the constant perpetual growth rate that Eaton’s investors expect?
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