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Consider the following three stocks: a. Stock A is expected to provide a dividend of $13 a share forever. b. Stock B is expected to
Consider the following three stocks: a. Stock A is expected to provide a dividend of $13 a share forever. b. Stock B is expected to pay a dividend of $6.5 next year. Thereafter, dividend growth is expected to be 4% a year forever. C. Stock C is expected to pay a dividend of $6.5 next year. Thereafter, dividend growth is expected to be 20% a year for 5 years (i.e., years 2 through 6) and zero thereafter. a. If the market capitalization rate for each stock is 10%, which stock is the most valuable? Stock A Stock B Stock C b. If the market capitalization rate for each stock is 7%, which stock is the most valuable? Stock A Stock B Stock C
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