An investor with a required return of 14 percent for very risky investment in common stock has analyzed three firms and must decide which, if any, to purchase firm A B C current earnings $2.00 $3.20 $7.00 current dividend $1.0 $3.00 $7.50 expected annual growth rate in 7% 2% -1% dividends and earnings Current market price $23 $47 $60 what is the maximun price that investor should pay for each stock based on the dividend growth model? b. if the investor does buy stock A, what is the implied percentage return? c. if the appropiate P/E ratio is 12, what is the maximun price the investor should pay for each stock? would your answer be differeny if the appropiate P/E were 7? d. what does stock C's negative growth rate imply?
An investor with a required return of 14 percent for very risky investment in common stock has analyzed three firms and must decide which, if any, to purchase
firm A B C
current earnings $2.00 $3.20 $7.00
current dividend $1.0 $3.00 $7.50
expected annual growth rate in 7% 2% -1%
dividends and earnings
Current market price $23 $47 $60
what is the maximun price that investor should pay for each stock based on the dividend growth model?
b. if the investor does buy stock A, what is the implied percentage return?
c. if the appropiate P/E ratio is 12, what is the maximun price the investor should pay for each stock? would your answer be differeny if the appropiate P/E were 7?
d. what does stock C's negative growth rate imply?
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