Q: Corn, Inc., has an odd dividend policy. The company has just paid a dividend of $6 per share and has announced that it will increase the dividend by $2 per share for each of the next four years, and then never pay another dividend. suppose you require an 11 percent return on thecompany’s stock.Required:a) how much will you pay for a share today?b) Is the value of this stock dependent upon how long you plan to hold it? would this affect the value of the stock today?c) What happens if a company has a constant growth g that exceeds its cost of capital ks?Will many stocks have expected g> ks in the short run? In the long run (that is, forever)?
Q: Corn, Inc., has an odd dividend policy. The company has just paid a dividend of $6 per share and has announced that it will increase the dividend by $2 per share for each of the next four years, and then never pay another dividend. suppose you require an 11 percent return on thecompany’s stock.Required:a) how much will you pay for a share today?b) Is the value of this stock dependent upon how long you plan to hold it? would this affect the value of the stock today?c) What happens if a company has a constant growth g that exceeds its cost of capital ks?Will many stocks have expected g> ks in the short run? In the long run (that is, forever)?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Q: Corn, Inc., has an odd dividend policy. The company has just paid a dividend of $6 per share and has announced that it will increase the dividend by $2 per share for each of the next four years, and then never pay another dividend. suppose you require an 11 percent return on the
company’s stock.
Required:
a) how much will you pay for a share today?
b) Is the value of this stock dependent upon how long you plan to hold it? would this affect the value of the stock today?
c) What happens if a company has a constant growth g that exceeds its cost of capital ks?
Will many stocks have expected g> ks in the short run? In the long run (that is, forever)?
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