Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

8. a. Computer stocks currently provide an expected rate of return of 14%. MBI, a large computer company, will pay a year-end dividend of $1

image text in transcribed

8. a. Computer stocks currently provide an expected rate of return of 14%. MBI, a large computer company, will pay a year-end dividend of $1 per share. If the stock is selling at $20 per share, what must be the market's expectation of the growth rate of MBI dividends? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. If dividend growth forecasts for MBI are revised downward to 4% per year, what will be the price of the MBI stock? (Round your answer to 2 decimal places.) c. What (qualitatively) will happen to the company's price-earnings ratio? (The P/E ratio will increase or decrease?)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions