Question
Q4: Warf Co. just paid a dividend of $4.00 per share. The company will increase its dividend by 20 percent next year and will then
Q4: Warf Co. just paid a dividend of $4.00 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent, after which the company will keep a constant growth rate, forever. If the required return on Warf stock is 13 percent.
Required:
a) what will a share of stock sell for today? (2 marks)
b) What conditions must hold if a stock is to be evaluated using the constant growth model? (2 mark)
c) Why the stock's intrinsic value differs from the stock's current market price? Explain
note : please solve in clean page so that can be easily be understood try to make solution as easy as can be.
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