Unlike Cheetah and Tiger, another automobile company Zeta has paid nothing as the annual dividend. Analysts...
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Unlike Cheetah and Tiger, another automobile company Zeta has paid nothing as the annual dividend. Analysts are predicting that it will not pay out dividends for next 5 years. After then, dividends are expected to grow by $0.2 per year in the next 3 years and by $0.30 in years 9 and 10. After then, Short Squeezers earnings are expected to grow 4.5% per year, and its dividend payout rate will remain constant. a. If Zeta equity cost of capital is 6.5% per year, what price does the dividend- discount model predict Zeta stock should sell for today? b. Suppose the Fed starts tapering and thus cost of capital rose to 7.5% per year. What would be the stock price? What would be the price change rate due to the increase in cost of capital? Unlike Cheetah and Tiger, another automobile company Zeta has paid nothing as the annual dividend. Analysts are predicting that it will not pay out dividends for next 5 years. After then, dividends are expected to grow by $0.2 per year in the next 3 years and by $0.30 in years 9 and 10. After then, Short Squeezers earnings are expected to grow 4.5% per year, and its dividend payout rate will remain constant. a. If Zeta equity cost of capital is 6.5% per year, what price does the dividend- discount model predict Zeta stock should sell for today? b. Suppose the Fed starts tapering and thus cost of capital rose to 7.5% per year. What would be the stock price? What would be the price change rate due to the increase in cost of capital?
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Related Book For
Essentials of Statistics for Business and Economics
ISBN: 978-1305081598
7th edition
Authors: David Anderson, Thomas Williams, Dennis Sweeney, Jeffrey Cam
Posted Date:
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