Question
The Kili Corporations just paid a $4.00 dividend. Kilis dividends are expected to grow at an 5% in perpetuity. The stock required discount rate is
The Kili Corporations just paid a $4.00 dividend. Kilis dividends are expected to grow at an 5% in perpetuity. The stock required discount rate is 12%. a. Calculate the company stock prices today. b. Calculate the stock price five years from today and calculate the rate of return to an investor buying the stock in five years and holding it for just one year (he sells immediately after receiving next year dividend). Show the return components, dividend yield and capital gains rate. c. What will happen to the stock price if Kili realizes the company is instead in perpetual growth of only 2.0%? Calculate the new stock price and the loss to the investor who bought the stock in section a .
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