Question
Jackson 5 industries decided to pay a $4 dividend in one year and the stock is currently trading at $22.18. The firm expects dividends to
Jackson 5 industries decided to pay a $4 dividend in one year and the stock is currently trading at $22.18. The firm expects dividends to grow at 20% for the next three years it pays dividends. After that point in time, the firm anticipates that the dividend growth rate will lineraly decline over the next four years to a long term constant growth rate of 2.5%. The risk premium for market is currently 4% with the risk free rate of 1.25%. In general, Jackson 5 industries is considered to be about 25% more sensitive to systematic risk as proxied by the market than other firms. What is the required rate of return for jackson 5 industries? how much is one share worth today? should you buy, sell, or hold share? Why?
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