Zycard, Inc., has determined that stockholders require a 15 percent rate of return to invest in its common stock. The last dividend paid by the company was $2.50 per share.
a. What will be the value of Zycard’s stock if investors expect future dividends to grow at a constant annual rate of?
(1) 0 percent,
(2) 5 percent,
(3) 10 percent?
b. Describe what steps you might take to estimate the appropriate future growth rate for Zycard.