You are considering investing in Starbucks Bond or Stock? The Starbucks bond matures in 10 years and your yield to maturity is 2.4%. Starbucks current stock price is $115, with a beta of 0.88 and dividend that will be paid next year of $1.80. Assume that a 10 year US Govt Bond has an yield of 1.65%.

Calculate the Starbucks Stock price using the Gordon's growth model/growing perp. formula assuming a 4% dividend growth rate? Should you buy the stock based on this calculated value? Why?

Answer rating: 100% (QA)

Starbucks Stock Valuation using Gordons Growth Model Given Riskfree rate Rf 165 10year US Trea... View the full answer