A stock is selling for $32 in the stock market, what might the market assuming about...
A stock is selling for $32 in the stock market, what might the market assuming about its constant growth rate in dividends if the firm is expected to have earnings per share (EPS) of $5 and 40% payout ratio next year. Assume a 13% discount rate
Homework Answers
Dividend next year = 5 * 0.4 = $2
Price = Div1 * (1 + g)/(r - g)
32 = 2 * (1 + g)/(0.13 - g)
32 * 0.13 - 32g = 2 + 2g
34g = 2.16
g = 2.16/34
g = 0.06352941176
g = 6.352941176%
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