Suppose you’re interested in investing stocks of ABC firm, which sells electronic devices.
• ABC firm is expected to pay dividend per share at $3 at the end of year 1, and this dividend is expected to be constant annually.
• By considering the periodic technological breakthrough, you expect the ABC firm will not be able to pay dividends since the end of year 10 and bankrupt without any residual value at that time.
• In addition, the expected returns of other companies' stocks within the same risk class as ABC stock are 12%.

Given these assumptions, what’s the price of ABC firm’s stock right now?
 What’s the price of ABC stock if we assume the dividend will grow at 7% each year?
 What’s the price of ABC stock if we assume the dividend will grow at 7% each year? And the discount rate changes to 15%?

Answer rating: 100% (QA)

To calculate the price of ABC firms stock based on the given assumptions we can use the Gordon Growt... View the full answer