Question
6. Gurley Enterprises stock has a required return of 14.70%. The company, which plans to pay a dividend of $3.20 per share in the coming
6. Gurley Enterprises stock has a required return of 14.70%. The company, which plans to pay a dividend of $3.20 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2012-2018 period, when the following dividends were paid:
Year Div. per Shr
2012 - $1.84
2013 - $1.95
2014 - $2.20
2015 - $2.33
2016 - $2.44
2017 - $2.60
2018 - $2.75
a. If the risk-free rate is 4%, what is the risk premium on Gurleys stock?
b. Using the constant-growth model, estimate the value of Gurleys stock.
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