A drug company stock is currently selling for $15 per share. It pays an annual dividend of

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A drug company stock is currently selling for $15 per share. It pays an annual dividend of $1.50, equal to 50% of earnings. Retained earnings are invested in research with a average return of 20% per year.

A. Using the constant-growth dividend discount model, what is the expected rate of return on the stock?

B. If the company raises the dividend to $3, what would the price of the stock be?

C. If the company eliminated the dividend, what would the stock price be?

Related Book For answer-question

Personal Finance Turning Money into Wealth

ISBN: 978-0133856439

7th edition

Authors: Arthur J. Keown

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Posted Date: Sep 05, 2020 04:42 AM

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A drug company stock is currently selling for $15 per share. It pays an annual dividend of

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Return Expected Rate 1 Po Di 15 150 101 1 Kers keol Po15 ... View the full answer

Personal Finance Turning Money into Wealth

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