XYZ Corporation pays annual dividends that start at $8 next year and then grow by 3% every year thereafter, indefinitely. The interest rate (required rate of return) is 6%. a. What should be the price of XYZ stock? What is the P/E ratio? b. What should its price be if dividends grow at 4% per year? What is the P/E ratio now?
XYZ Corporation pays annual dividends that start at $8 next year and then grow by 3% every year thereafter, indefinitely. The interest rate (required rate of return) is 6%. a. What should be the price of XYZ stock? What is the P/E ratio? b. What should its price be if dividends grow at 4% per year? What is the P/E ratio now?
Chapter7: Valuation Of Stocks And Corporations
Section7.6: Valuing Nonconstant Growth Stocks
Problem 3ST
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Transcribed Image Text:XYZ Corporation pays annual dividends
that start at $8 next year and then
grow by 3% every year thereafter,
indefinitely. The interest rate
(required rate of return) is 6%.
a. What should be the price of XYZ
stock? What is the P/E ratio?
b. What should its price be if
dividends grow at 4% per year? What is
the P/E ratio now?
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