Computer stocks currently provide an expected rate of return of 21%. MBI, a large computer company, will pay a year-end dividend of $3.00 per share. a. If the stock is selling at $60 per share, what must be the market's expectation of the dividend growth rate? (Round your answer to 2 decimal places.) Growth rate % b. If dividend growth forecasts for MBI are revised downward to 8% per year, what will happen to the price of MBI stock? O The price will rise. O The price will fall. c. What (qualitatively) will happen to the company's price-earnings ratio? O The price-earnings ratio will rise. O The price-earnings ratio will fall.

Computer stocks currently provide an expected rate of return of 21%. MBI, a large computer company, will pay a year-end dividend of $3.00 per share. a. If the stock is selling at $60 per share, what must be the market's expectation of the dividend growth rate? (Round your answer to 2 decimal places.) Growth rate % b. If dividend growth forecasts for MBI are revised downward to 8% per year, what will happen to the price of MBI stock? O The price will rise. O The price will fall. c. What (qualitatively) will happen to the company's price-earnings ratio? O The price-earnings ratio will rise. O The price-earnings ratio will fall.

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 12P

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