Question
World Wide Inc. is expected to pay a per share dividend of $3 one year from today, which will then grow at a rate of
World Wide Inc. is expected to pay a per share dividend of $3 one year from today, which will then grow at a rate of 8% in perpetuity. The firm's equity cost of capital is 12%. This is the return that you would expect to earn on investments of similar risk to WW Inc.'s stock.
What is the current stock price of World Wide Inc. to the nearest dollar (e.g., $99)?
What would the price be if the growth rate was 8% but the equity cost of capital (or stock's expected return) was 14%?
What would the price be if the dividend growth rate was 10% instead of 8%?
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