Question
Currently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next 4 years at 20%.
Currently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next 4 years at 20%. After this initial period of super growth, the rate of increase in the dividend should decline to 8%. If you want to earn 12% on investments in common stock, what is the maximum you should pay for this stock?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the maximum price you should pay for Stock A we can use the dividend discount model DDM ...
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Step: 2
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Principles of Finance
Authors: Scott Besley, Eugene F. Brigham
6th edition
9781305178045, 1285429648, 1305178041, 978-1285429649
