# The stock of TheyWork pays an uncertain dividend at the end of each calendar year. It is the 1st of

## 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.

**Related Book For**

## Financial Reporting Financial Statement Analysis and Valuation a strategic perspective

ISBN: 978-1337614689

9th edition

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

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**12**- Valuation: Cash-Flow-Based Approaches