Question
Recently, Coca-Cola Company (KO) stock had a share price of $110.07; numerous analysts forecase a dividend per share of $1.47 in one year (i.e., at
Recently, Coca-Cola Company (KO) stock had a share price of $110.07; numerous analysts forecase a dividend per share of $1.47 in one year (i.e., at t=1). Suppose that you, as an analyst, expect Coca-Cola to increase this dividend by 6.72% per year in perpetuity.
a. If Coca-Cola's equity cost of capital [which is also the stockholders' required return on the stock] is 8.28%, what share price would you calculate based on your estimate of the dividend growth rate?
b. Given Coca-Cola's observed share price and assuming that everyone agrees on the equity cost of capital, what would you conclude about your assessment of Coca-Cola's future dividend growth?
a. If Coca-Cola's equity cost of capital [which is also the stockholders' required return on the stock] is 8.28%, what share price would you expect based on your estimate of the dividend growth rate? Coca-Cola's price per share should be ___
b. Given Coca-Cola's share price, what would you conclude about your assessment of Coca-Cola's future dividend growth?
1. Given Coca-Cola's observed share price and an agreed-upon cost of equity capital of 8.28%, market-wide perceptions are that the dividend growth rate is ____%. (Round to two decimal places.)
2. So, your estimate of the dividend growth rate is apparently ______ [higher or lower] than the market-wide estimate, causing your valuation to be_____ [higher or lower] than the prevailing stock price of $110.07.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started