nvestors required a 12% rate for turn on Brook Corporation stock (rs = 12%). a. What would the estimate value of Brook’s stock be if the dividend the firm just paid was D0 = $1.50 and if investors expect future dividends to grow at a constant annual rate of (1) 4%; (2) 0%; (3) 4%; (4) 10%? b. Using the data from Part (a), what is the constant growth model’s estimated value for Brook’s stock if the required rate of return is 12% and the expected growth rate is (1) 12% or (2) 15%? Are these reasonable results? Explain. c. Is it reasonable to expect a constant growth stock would have GL > RS?
nvestors required a 12% rate for turn on Brook Corporation stock (rs = 12%). a. What would the estimate value of Brook’s stock be if the dividend the firm just paid was D0 = $1.50 and if investors expect future dividends to grow at a constant annual rate of (1) 4%; (2) 0%; (3) 4%; (4) 10%? b. Using the data from Part (a), what is the constant growth model’s estimated value for Brook’s stock if the required rate of return is 12% and the expected growth rate is (1) 12% or (2) 15%? Are these reasonable results? Explain. c. Is it reasonable to expect a constant growth stock would have GL > RS?
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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nvestors required a 12% rate for turn on Brook Corporation stock (rs = 12%).
a. What would the estimate value of Brook’s stock be if the dividend the firm just paid was
D0 = $1.50 and if investors expect future dividends to grow at a constant annual rate of
(1) 4%; (2) 0%; (3) 4%; (4) 10%?
b. Using the data from Part (a), what is the constant growth model’s estimated value for
Brook’s stock if the required
12% or (2) 15%? Are these reasonable results? Explain.
c. Is it reasonable to expect a constant growth stock would have GL > RS?
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