Question
The current stock price (year 0) of the Sizzling Sausage Corporation is $27.50. According to your information and analysis, you expect this company to pay
The current stock price (year 0) of the Sizzling Sausage Corporation is $27.50. According to your information and analysis, you expect this company to pay its first dividend of $2.50 in year 2, and from year 3 on, you expect to see a steady growth in dividends. Specifically, you figure out that the dividends in year 3 will be $2.75 and will then continue to grow for another 15 years at 3.5% per year, after which it will grow 2.5% per year forever. The appropriate discount rate is 9%.
If you currently own this stock, ignoring transaction costs what should you do according to the above information - buy more stock at the current market price or sell your stock? (Explain your answer using quantitative analysis)
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