Question
Acme paid a $2-per-share dividend yesterday. Its dividends are expected to grow at 1% indefinitely. Using the table below, what is the maximum that an
Acme paid a $2-per-share dividend yesterday. Its dividends are expected to grow at 1% indefinitely.
Using the table below, what is the maximum that an investor should be willing to pay for the share of common stock?
Table below to be used with problem #4 below
Variable | Value | Explanation |
Dividend growth estimate | 2% 1% | Over first two years, and Indefinitely afterwards |
Current dividend | $1.00 | Dividend declared on 4/19/22 to be paid to shareholders on record as of 4/28/22 |
Beta coefficient | 2.0 | Current estimate |
Expected market return | 12.0% | Historical arithmetic average (annual) return on the S&P 500 Index |
RFR | 5.0% | 10 year Treasury bond yield |
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