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You want to use a one-period growth model to price stock B, currently trading at $40/share. Firm B will pay the next annual dividend, $.90/share,
You want to use a one-period growth model to price stock B, currently trading at $40/share. Firm B will pay the next annual dividend, $.90/share, in one year. Also, firm B will maintain a stable dividend policy, that is firm B will pay out 50% of its earnings every year. Firm B will earn a stable return, 18%. Firm B has a cost of capital of 12%. A. What is your expected annual growth of dividends? B. Is Stock B undervalued or overvalued? C. What return is stock B expected to pay if you buy the stock at its current market price?
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