Consider the following 3 stocks: a. Stock A is expected to provide a dividend of $10 a
Question:
a. Stock A is expected to provide a dividend of $10 a share forever.
b. Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 4% a year forever.
c. Stock C is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 20% a year for 5 years (i.e., until year 6) and zero thereafter.
If the market capitalization rate for each stock is 10%, which stock is the most valuable? What if the capitalization rate is 7%?
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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If market capital rate is 10 a Calculation of Stock Price r DP g r 10 d 10 g 0 P Drg 10 01...View the full answer
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Related Book For 
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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