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Investors require a 15% rate of return on Levine Company's stock (that is, r s = 15%). What is its value if the previous dividend
Investors require a 15% rate of return on Levine Company's stock (that is, rs = 15%).
- What is its value if the previous dividend was D0 = $4.00 and investors expect dividends to grow at a constant annual rate of (1) -6%, (2) 0%, (3) 7%, or (4) 14%? Round answers to the nearest hundredth.
- Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 15% and the expected growth rate were (1) 15% or (2) 20%? Are these reasonable results?
- The results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate.
- The results show that the formula makes sense if the required rate of return is equal to or greater than the expected growth rate.
- These results show that the formula does not make sense if the expected growth rate is equal to or less than the required rate of return.
- The results show that the formula does not make sense if the required rate of return is equal to or less than the expected growth rate.
- The results show that the formula does not make sense if the required rate of return is equal to or greater than the expected growth rate
- Is it reasonable to think that a constant growth stock could have g > rs?
- It is reasonable for a firm to grow indefinitely at a rate higher than its required return.
- It is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return.
- It is not reasonable for a firm to grow indefinitely at a rate lower than its required return.
- It is not reasonable for a firm to grow indefinitely at a rate equal to its required return.
- It is not reasonable for a firm to grow indefinitely at a rate higher than its required return.
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