Question
Phoenix Motor Corporation has pulled off a miraculous recovery. Four years ago, it was near bankruptcy. Now , Collins Ndhlovu, the charismatic leader, a corporate
Phoenix Motor Corporation has pulled off a miraculous recovery. Four years ago, it was near bankruptcy. Now , Collins Ndhlovu, the charismatic leader, a corporate folk hero, may run for president. Phoenix has just announced a $1 per share dividend, the first since the crisis hit. Analysts expect an increase to a normal $3 as the company completes its recovery over the next three years. After that, dividend growth is expected to settle down to a moderate long-term growth rate of 6%. Phoenix stock is selling at $50 per share. What is the expected long-run rate of return from buying the stock at this price? Assume that dividends of $1, $2, and $3 for years 1, 2, 3. A little trial and error (or a numerical calculator search) will be necessary to find r.
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