Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A stock just paid an annual dividend of $1.1. The dividend is expected to grow by 9% per year for the next 3 years. The

A stock just paid an annual dividend of $1.1. The dividend is expected to grow by 9% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 9% after 3 years to 6% in year 6.

The required rate of return is 12%.

a. What is the value of the stock if the dividend growth rate will stay 0.06 (6%) forever after 6 years?

b. In 6 years, the P/E ratio is expected to be 21 and the payout ratio to be 80%. What is the value of the stock when using the P/E ratio?

(Please help me solve this right chegg keeps solving it wrong)

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

Finance For IT Decision Makers

Authors: Michael Blackstaff

1st Edition

3540762329, 978-3540762324

More Books

Students also viewed these Finance questions

Question

3. Explain the concept of person-organization fit.

Answered: 1 week ago