Investors require a 13% rate of return on Brook Corporation stock (rs = 13%). a. What would

Question:

Investors require a 13% rate of return on Brook Corporation stock (rs = 13%).

a. What would the estimated value of Brook's stock be if the previous dividend were D0 = $3 00 and if investors expect dividends to grow at a constant annual rate of (1) −5%, (2) 0%, (3) 5%, and (4) 10%?

b. Using data from Part a, what is the constant growth model's estimated value for Brook's stock if the required rate of return is 13% and the expected growth rate is (1) 13% or (2) 15%? Are these reasonable results? Explain.

c. Is it reasonable to expect that a constant growth stock would have gL > rs?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...