You are a stock analyst and your friend has approached you with a hot tip. He is
Question:
You are a stock analyst and your friend has approached you with a hot tip. He is interested in a stock that currently sells at $50.00, It just paid a dividend of $1.50, and its historic dividend growth has been 4% annually, and this is not expected to change in the future. This stock is considered to be 1.5 times as volatile as the stock market on average. You have done some market research and found the following information. The government of Canada 90 day commercial paper (short-term borrowing) is yielding 3.0% and its 10-year bonds yield 4.0%. The return on the stock market has been 10% over the past year. Showing all calculations to support your answer, give a recommendation to your friend regarding this stock.
Write your recommendation and show all calculations
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th Edition
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan