Company Z-prime's earnings and dividends per share are expected to grow by 2% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year's dividend is $4, the cost of equity is 10%, and next year's EPS is $11. What is Z-prime's stock price?
Company Z-prime's earnings and dividends per share are expected to grow by 2% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year's dividend is $4, the cost of equity is 10%, and next year's EPS is $11. What is Z-prime's stock price?
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 12P
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Transcribed Image Text:Company Z-prime's earnings and dividends per share are expected to grow by 2% a year. Its growth will stop
after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year's dividend is
$4, the cost of equity is 10%, and next year's EPS is $11.
What is Z-prime's stock price?
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