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Consider the following three stocks: a. Stock A is expected to provide a dividend of $11.80 a share forever b. Stock B is expected to pay a dividend of $6.80 next year. Thereafter, dividend growth is expected to be 3.00% a year forever. C. Stock C is expected to pay a dividend of $4.20 next year. Thereafter dividend growth is expected to be 19.00% a year for five years (i.e. years 2 through 6) and zero thereafter a-1. If the market capitalization rate for each stock is 9.00%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock Price Stock A Stock B Stock C a-2. Which stock is the most valuable? Slack Stock B Stock A b-1. If the market capitalization rate for each stock is 6.00%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock A Stock B Stock C b-2. Whlch stock Is the most valuable? Stock A StockB Stock C References eBook &Resources

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Answer #1

Stock Price is present value of future dividend.

Stock price = Expected dividend/Capitalization rate

Price (In case of  growth )= Expected dividend/Capitalization rate-growth rate

GHack PoiceExpected dividand cap i talization Rate .09 ェ$131116.8 ·01-..03 13:33 Du dend 4-2 4.998 S.95 1.08 8 43 0.03 ,,絜 re.al-., .91그 3.g 5 2. .PY2 .708 S96 4.21 . 5.C1 s. s-9 ce0 03 95-54 0q 4-2 steok9 most valuobdle dl o b-I .06 위 q 6.67G-8. 06--03 ニ$ 336.67 s ock C paal Dividend 9433:96 890 4 448 .840 4998 ,792- S-607 -747 6, 291 4-2 ฯ.qq g 2 3 1 S.9S Te 08 6.43 O 03 lo 03 1So 2.32 uce .06 Stock t is mast valuable

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