Question
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the terminal stock price. Suppose a company just paid a dividend of $1.15. The dividends are expected to grow at 20% over the next five years. After five years, the dividends are expected to grow at 7% per year indefinitely. Assume a required rate of return of 12%, and that the market price of the stock is $33. Do you think that this stock could be a good investment to buy or to sell? Why is that?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started