Question
Gentleman gym just paid its annual dividend of $3 per share, and its widely expected that the dividend will increase by 5% per year indefinitely.
Gentleman gym just paid its annual dividend of $3 per share, and its widely expected that the dividend will increase by 5% per year indefinitely.
A. What should the stock sell at? The discount rate is 15%.
B. How would your answer change if the discount rate was only 12%? Why does the answer change?
C. What is the expected stock price 3 years from now?
D. If you buy the stock and plan to sell it 3 years from now, what are your expected cash flows in (i) year 1; (ii) year 2; (iii) year 3?
E. What is the present value of the stream of payments you found in part (d)? Compare your answer to part (b).
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