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Consider the Gordon Growth Model. Suppose ABC Corporation's total dividend payout for the current fiscal year is $11.94 million, and it is expected to grow
Consider the Gordon Growth Model. Suppose ABC Corporation's total dividend payout for the current fiscal year is $11.94 million, and it is expected to grow at 5.01% per year. The discount rate for the cash flow is 11.48%. For simplicity, assume that it is the beginning of ABC's fiscal year so that the earliest dividend ($11.94 million) comes in one year from now. ABC has 10.3 million outstanding shares. (a) What is ABC's current stock price? (b) Suppose that the risk aversion of investors suddenly increases, so that discount rate rises to 17.47% per year. What is ABC's stock price? (c) Suppose there is no change in ABC's discount rate, but investors upgrade their belief about the expected future growth rate of ABC's dividends to 8.02% per year. What is the stock price of ABC under this scenario
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