Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Nonconstant Dividend Growth Valuation
Assume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 5% and that its dividend
yield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (Do) of $2.75. Analysts expect
that the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 30% during the second year (91,2 =
30%). After Year 2, dividend growth will be constant at 5%.
What is the required rate of return on C&J's stock? Do not round intermediate calculations. Round your answer to the nearest
whole number.
%
What is the estimated intrinsic price per share? Do not round intermediate calculations. Round your answer to the nearest
cent.
$
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Transcribed Image Text:Nonconstant Dividend Growth Valuation Assume that the average firm in C&J Corporation's industry is expected to grow at a constant rate of 5% and that its dividend yield is 8%. C&J is about as risky as the average firm in the industry and just paid a dividend (Do) of $2.75. Analysts expect that the growth rate of dividends will be 50% during the first year (90,1 = 50%) and 30% during the second year (91,2 = 30%). After Year 2, dividend growth will be constant at 5%. What is the required rate of return on C&J's stock? Do not round intermediate calculations. Round your answer to the nearest whole number. % What is the estimated intrinsic price per share? Do not round intermediate calculations. Round your answer to the nearest cent. $
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