ABC company is growing at a constant rate of 8% every year. Last week the company paid a dividend of $2.8. If dividends are expected to grow at the same rate as the fi rm and the required rate of return is 12 percent, what should be the stock’s price four years from now? Show your calculation.

ABC company is growing at a constant rate of 8% every year. Last week the company paid a dividend of $2.8. If dividends are expected to grow at the same rate as the fi rm and the required rate of return is 12 percent, what should be the stock’s price four years from now? Show your calculation.

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

8th Edition

ISBN:9781285065137

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 6DQ

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Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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