Investors require an 8% rate of return on Mather Company's stock (le, -8). . What is its value if the previous dividend was Do - $2.00 and investors expect dividends to grow at a constant annual rate of (1) -5%, (2) 0%, (3) 4%, or (4) 5*? Do not round intermediate calculations. Round your answers to the nearest cent, (1) (2) 5 (3) b. Using data from part a, what would the Gordon (constant growth) model value be if the required rate of return was and the expected growth rate was (1) or (2) 127 Round your answers to the nearest cent. If the value is undefined, enter N/A (1) (25 Are these reasonable results? These results show that the formule does not make sense of the required rate of return is equal to or less than the expected growth rate. II. These results show that the formula does not make sense of the required rate of return is equal to or greater than the expected growth rate. III. These results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate. IV. These results show that the formula makes sense of the required rate of return is equal to or greater than the expected growth rate. V. 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 Select Is it reasonable to think that a constant growth stock could have g? L. It is not reasonable for a firm to grow even for a short period of time at a rate higher than its required retur, IL. It is not reasonable for a firm to grow indefinitely at a rate lower than its required retum III. It is not reasonable for a firm to grow indefinitely 19: Assigned Problems. Stocks and Their Valuation (2) (3) 5 (4) b. 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 or (2) 12%? Round your answers to the nearest cent. If the value is undefined, enter N/A (1) 5 (2) $ Are these reasonable results? I. 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. II. 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, III. These results show that the formula makes sense if the required rate of return is equal to or less than the expected growth rate. IV. These results show that the formula makes sense of the required rate of retum is equal to or greater than the expected growth rato. V. These results show that the formula does not make sense of the expected growth rate is equal to or less than the required rate of retum. Select c. Is it reasonable to think that a constant growth stock could have g > ? 1. It is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return. 11. It is not reasonable for a firm to grow indefinitely at a rate lower than its required return. III. It is not reasonable for a firm to grow indefinitely at a rate equal to its required retum. IV. It is not reasonable for a firm to grow indefinitely at a rate higher than its required return. V. It is reasonable for a firm to grow indefinitely at a rate higher than its required return. Select
