Question
Please answer both parts 13b. Assume Stock B currently pays no dividends today but is expected to begin paying dividends $6 per share in 5
Please answer both parts
13b. Assume Stock B currently pays no dividends today but is expected to begin paying dividends $6 per share in 5 years. The dividends are expected to have a constant growth rate of 6% at that time and the firm has a cost of equity of 12.1%. Using the dividend discount model, what do you estimate the share price should be?
13c. Let's say Firm A is assumed to have a dividend growth rate of 20% for the next three years, then 5% per year afterward. The cost of equity is assumed to be 15%. Assume that the stock recently paid a dividend of $9. Compute the value of the stock.
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