Question

You are considering the purchase of stock XYZ. XYZ pays a dividend of $1.00 and expects...

You are considering the purchase of stock XYZ. XYZ pays a dividend of $1.00 and expects to grow dividends by 6.0% each year. A stock of similar risk, ABC, currently trades at $55.79, pays a dividend of $3.25 per share, and expects to grow dividends by 3.0% each year.

  • Determine the fair market price of stock XYZ, using the given data from stock ABC.
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Answer #1

Fair Market Price of stock XYZ is $35.33

Cost of capital has been calculated from the given data of ABC stock

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