Trend-Line Inc. has been growing at a rate of 6% per year and is expected to continue to do so
indefinitely. The next dividend is expected to be $5 per share.
a. If the market expects a 10% rate of return on Trend-Line, at what price must it be selling?
b. If Trend-Line’s earnings per share will be $8, what part of Trend-Line’s value is due to assets
in place, and what part to growth opportunities?
Constant growth rate...... 6.00%
Dividend per share....... $5.00
Expected rate of return (a).... 10.00%
Earnings per share (b) ...... $8.00