Question
ABC Company just paid a dividend of $5.00. Dividends are expected to grow 8 percent per year for the next three years, and 6 percent
ABC Company just paid a dividend of $5.00. Dividends are expected to grow 8 percent per year for the next three years, and 6 percent for each of the following two years. After this time, growth is expected to return to a long-run constant rate of 4 percent. The required rate of return (rs) on the stock is 9 percent. (8 points)
a) Calculate the present value of each dividend for years 1-5.
b) Calculate the stock price as of the end of year 5.
c) Calculate the current stock price (P0).
d) Calculate the dividend yield (D1/P0) and the expected capital gains yield for the first year.
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