Question
Question 10: You are a stock analyst discussing dividend forecasts with the CFO of Plutonix Corporation (PLX). She makes the following comment: We expect to
Question 10: You are a stock analyst discussing dividend forecasts with the CFO of Plutonix Corporation (PLX). She makes the following comment: We expect to continue to pay the current $4.25 annual dividend for the next 3 years. However, starting in Year 4 we plan to reduce the dividend to $3.75 in order to invest in new projects. We predict this will result in a growth rate of 3%. We do not anticipate any changes to our cost of equity capital (Re), which is currently 8%.
What is the value of PLX stock? What are the advantages and disadvantages of the Dividend Discount Model (DDM)?
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