Assume that the average firm in your company's industry is expected to grow at a constant rate of 4% and that its dividend yield is 8%. Your company is about as risky as the averag irm in the industry and just paid a dividend (Do) of $1. You expect that the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 30% during the second year = 30%). After Year 2, dividend growth will be constant at 4%. What is the required rate of return on your company's stock? What is the estimated value per share of your firm's stock hot round intermediate calculations. Round the monetary value to the nearest cent and percentage value to the nearest whole number. %
Assume that the average firm in your company's industry is expected to grow at a constant rate of 4% and that its dividend yield is 8%. Your company is about as risky as the averag irm in the industry and just paid a dividend (Do) of $1. You expect that the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 30% during the second year = 30%). After Year 2, dividend growth will be constant at 4%. What is the required rate of return on your company's stock? What is the estimated value per share of your firm's stock hot round intermediate calculations. Round the monetary value to the nearest cent and percentage value to the nearest whole number. %
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
Problem 1PS
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Transcribed Image Text:Nonconstant Growth Stock Valuation
Assume that the average firm in your company's industry is expected to grow at a constant rate of 4% and that its dividend yield is 8%. Your company is about as risky as the average
firm in the industry and just paid a dividend (Do) of $1. You expect that the growth rate of dividends will be 50% during the first year (90,1 50%) and 30% during the second year (91,2
= 30%). After Year 2, dividend growth will be constant at 4%. What is the required rate of return on your company's stock? What is the estimated value per share of your firm's stock? Do
not round intermediate calculations. Round the monetary value to the nearest cent and percentage value to the nearest whole number.
rs:
Po: $
%
Expert Solution
Step 1: Define=Required rate
Required rate of return is the sum of the dividend yield and growth rate of company and is the expected rate of shareholders.
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