Question
Consider the following three stocks: Stock A is expected to provide a dividend of $11.40 a...
Consider the following three stocks:
- Stock A is expected to provide a dividend of $11.40 a share forever.
- Stock B is expected to pay a dividend of $6.40 next year. Thereafter, dividend growth is expected to be 2.00% a year forever.
- Stock C is expected to pay a dividend of $4.60 next year. Thereafter, dividend growth is expected to be 18.00% a year for five years (i.e., years 2 through 6) and zero thereafter.
a-1. If the market capitalization rate for each stock is 8.00%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
| Stock Price | |
| Stock A | $ |
| Stock B | $ |
| Stock C | $ |
a-2. Which stock is the most valuable?
| Stock C | |
| Stock B | |
| Stock A |
b-1. If the market capitalization rate for each stock is 5.00%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
| Stock Price | |
| Stock A | $ |
| Stock B | $ |
| Stock C | $ |
b-2. Which stock is the most valuable?
| Stock B | |
| Stock A | |
| Stock C |
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