Company Z-prime’s earnings and dividends per share are expected to grow by 5% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $3, the cost of equity is 13%, and next year’s EPS is $8. What is Z-prime’s stock price?

Answer rating: 100% (QA)

Finding the price of Zprimes stock involves 2 steps calculating the price until the growth stops yea... View the full answer