Investors require an 8% rate of return on Mather Company's stock (i.e., rs = 8%). -
What is its value if the previous dividend was D0 = $3.25 and investors expect dividends to grow at a constant annual rate of (1) -4%, (2) 0%, (3) 2%, or (4) 6%? Do not round intermediate calculations. Round your answers to the nearest cent. (1) $ (2) $ (3) $ (4) $ - Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was 8% and the expected growth rate was (1) 8% or (2) 12%? Round your answers to the nearest cent. If the value is undefined, enter N/A.
(1) $ (2) $ Are these reasonable results? - 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.
- These 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.
- These 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.
- These results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate.
- These results show that the formula makes sense if the required rate of return is equal to or greater than the expected growth rate.
-Select-IIIIIIIVVItem 7 - Is it reasonable to think that a constant growth stock could have g > rs?
- 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.
- 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.
-Select-IIIIIIIVVItem 8 |