Investors require a 13% rate of return on Brooks Sisters's stock (rs = 13%). a. What would

Question:

Investors require a 13% rate of return on Brooks Sisters's stock (rs = 13%).

a. What would the estimated value of Brooks' stock be if the previous dividend were D0 = $3.00 and if investors expect dividends to grow at a constant annual rate of:

(1) 25%,

(2) 0%,

(3) 5%,

(4) 10%?

b. Using data from part a, what is the constant growth model's estimated value for Brooks Sisters's stock if the required rate of return is 13% and the expected growth rate is:

(1) 13%

(2) 15%?

Are these reasonable results? Explain.

c. Is it reasonable to expect that a constant growth stock would have g > rs?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...