Assume Highline Company has just paid an annual dividend of $0.98. Analysts are predicting an 10.8% per year growth rate in earnings over the next five years. After then, Highline's earnings are expected to grow at the current industry average of 5.4% per year. If Highline's equity cost of capital is 8.4% per year and its dividend payout ratio remains constant, for what price does the dividend-discount model predict Highline stock should sell?
Assume Highline Company has just paid an annual dividend of $0.98. Analysts are predicting an 10.8% per year growth rate in earnings over the next five years. After then, Highline's earnings are expected to grow at the current industry average of 5.4% per year. If Highline's equity cost of capital is 8.4% per year and its dividend payout ratio remains constant, for what price does the dividend-discount model predict Highline stock should sell?
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 4P
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