This one’s a little harder. Suppose the current share price for the firm in Problem 6.48 is $78.43, and all the dividend information remains the same. What required return must investors be demanding on Storico stock?
Problem 6.48
Storico Co. just paid a dividend of $3.85 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Storico stock is 13 percent, what will a share of stock sell for today?

  • CreatedJune 17, 2015
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