Question
Zenith Propulsion, Inc., is expected to pay a dividend next year of $2.45 per share. Investors think that Zenith will continue to increase it's dividend
Zenith Propulsion, Inc., is expected to pay a dividend next year of $2.45 per share. Investors think that Zenith will continue to increase it's dividend by 5% each year for the foreseeable future. A. If the required rate of return on Zenith stock is 13%, then what is Zenith's stock price? $32.16 B. Investors expect Zenith to pay out 50% of it's earnings as dividends. What is Zenith's price/earning ratio?(Here P/E is defined as current price divided by next year's earnings) C. Maintaining all other assumptions, recalculate Zenith's stock price and P/E ratio if investors expect dividends to grow 8% per year rather than at 5%.
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