Rowena plans to purchase a stock that is currently paying no dividend. Rowena expects the stock to pay its first dividend of $5.00 per share in eight years. Furthermore, she expects the firm to have an ROE of 16% and a dividend pay-out ratio of 60% thereafter. What value should Rowena place on the stock now if her required return on the stock is 8.75%?

Rowena plans to purchase a stock that is currently paying no dividend. Rowena expects the stock to pay its first dividend of $5.00 per share in eight years. Furthermore, she expects the firm to have an ROE of 16% and a dividend pay-out ratio of 60% thereafter. What value should Rowena place on the stock now if her required return on the stock is 8.75%?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 23P

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