You just purchased the stock of Rubik Corp. based on your belief that the stock will pay a dividend of $

3.48 at the end of this year. You also expected dividends to grow at an annual rate of

5.2% per year into perpetuity. One hour after you purchased Rubik Corp's stock, the CEO of Rubik Corp. announces that growth has slowed at the firm. They plan to pay the $ 3.48 dividend at the end of this year, but they expect future dividends to grow by only 3.3% per year into perpetuity. Rubik's equity cost of capital is

12.8%.

a. What is the value of a share of Rubik Corp.'s stock based on the original expected dividend growth of

5.2% per year?

b. If you tried to sell your Rubik Corp. stock after hearing this news, what price would you receive?

Answer rating: 100% (QA)

a Value of a share of Rubik Corps stock based on the original expected dividend growth of 52 per yea... View the full answer