A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = −5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT? Group of answer choices The constant growth model cannot be used because the growth rate is negative. The company's dividend yield 5 years from now is expected to be 10%. The company's current stock price is $20. The company's expected stock price at the beginning of next year is $9.50

A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = −5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT? Group of answer choices The constant growth model cannot be used because the growth rate is negative. The company's dividend yield 5 years from now is expected to be 10%. The company's current stock price is $20. The company's expected stock price at the beginning of next year is $9.50

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 16MC: Assume that Temp Force is a constant growth company whose last dividend (D0, which was paid...

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A stock is expected to pay a year-end dividend of $2.00, i.e., D₁ = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, then which of the following statements is CORRECT? a. The constant growth model cannot be used because the growth rate is negative. b. The company's dividend yield 5 years from now is expected to be 10%. c. The company's current stock price is $20. O d. The company's expected capital gains yield is 5%. e. The company's expected stock price at the beginning of next year is $9.50.
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