Question
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)
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