Question
Please answer both questions and show work for question 12 QUESTION 11 Which of the following statements is CORRECT? A. Two firms with the same
Please answer both questions and show work for question 12
QUESTION 11
Which of the following statements is CORRECT?
A. | Two firms with the same expected dividend and growth rate must also have the same stock price. | |
B. | The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. | |
C. | The constant growth model takes into consideration the capital gains investors expect to earn on a stock. | |
D. | It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant. |
QUESTION 12
Nachman Industries just paid a dividend of $2.20 per share. Analysts expect the company's dividend to grow by 15% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 12.00%. What is the best estimate of the stocks current market value?
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