The stock of TheyWork pays an uncertain dividend at the end of each calendar year. It is
Question:
The stock of TheyWork pays an uncertain dividend at the end of each calendar year. It is the 1st of January and the company has just paid a $12 dividend. The price dividend ratio of TheyWork is 20.37. Expected dividends of the company grow at the rate of 10% per year.
(a) According to the Gordon Growth Formula, what must be the discount rate r of They- Work?
(b) The risk-free rate is 1% and the market risk premium is 6%. Suppose the CAPM holds, what must be the β of TheyWork?
(c) It is still the 1st of January and you learn that after this year's dividend is paid out in December, the growth rate of TheyWork expected dividends going forward will be g = 0%. What is the new price of TheyWork stock? HINT: draw a timeline.
Expert Answer:
Lets address each part of the question a According to the Gordon Growth Model Dividend Discount Mode... View the full answer
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
