Your company has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 20%, 10%, and 8% in the next three years respectively, and settle down to a constant growth rate of 5% starting in the 4th year. The last dividend paid (D0) of your company was $2 and investors require a 20% return. 1)What is the current value per share of your company’s stock? 2)What is the expected capital gain yield in year 1 and year 10 respectively?
Your company has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 20%, 10%, and 8% in the next three years respectively, and settle down to a constant growth rate of 5% starting in the 4th year. The last dividend paid (D0) of your company was $2 and investors require a 20% return. 1)What is the current value per share of your company’s stock? 2)What is the expected capital gain yield in year 1 and year 10 respectively?
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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Your company has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 20%, 10%, and 8% in the next three years respectively, and settle down to a constant growth rate of 5% starting in the 4th year. The last dividend paid (D0) of your company was $2 and investors require a 20% return.
1)What is the current value per share of your company’s stock?
2)What is the expected
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