In the challenging world of retail sales, Macy's, Inc.'s (M's) revenues are declining while expenses are generally
Question:
In the challenging world of retail sales, Macy's, Inc.'s (M's) revenues are declining while expenses are generally flat. Based on recent conversations with management at Macy's, analysts believe that dividends will decline at a rate of 7% perpetually. The firm just paid a dividend of $5.10 per share and the required return on the stock is 13%.
a. At what price should a share of M stock sell today?
b. Calculate what the stock should sell for 8 years from now.
c. Briefly explain, perhaps with the aid of a single calculation, why an investor would still be interested in buying the stock today even though the stock price is predicted to fall across time.
[Note: Do not assume that any of the input variables are wrong, or could be different for some investors. Every investor agrees on the inputs in this problem.
HINT: "Returns Terminology for Bonds, Stocks, & Projects".
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr