FIN550 Week 5 Discussion chapter 11

# FIN550 Week 5 Discussion chapter 11 - Dividend Growth Rate...

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Week 5 Discussion Chapter 11 - Problem 15 Problem 13 Gentry Can Company's latest annual dividend of \$1.25 a share was paid yesterday and maintained its historic 7% annual rate of growth. You plan to purchase the stock today because you believe that the dividend growth rate will increase to 8% for the next three years and the selling price of the stock will be \$40 per share at the end of that time. First lets compute the dividend rate at the 8% increase over the next three ye Year Current Dividends Growth Rate Dividend 1 1.25 8% 1.350 2 1.35 8% 1.458 3 1.46 8% 1.575 A How much should you be willing to pay for GCC stock if you require a 12% return Present Value of Stock

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Unformatted text preview: Dividend Growth Rate 1.350 1.12 1.20536 1.458 1.12 1.30179 1.575 1.12 1.40593 40 1.12 35.71429 \$39.63 B What is the maximum price you should be willing to pay for GCC stock if you believe that the 8% growth rate can be maintained indefinitely and you reguire a 12% return? 0.12 0.08 1.350 0.04 \$33.75 Maximum price to pay for GCC stock C If the 8% percent rate of growth is achieved, what will the price be at the of year 3, assuming the conditions in part B? 1.08 4 1.25 1.3605 1.7006 \$42.52 Stock price achieved at the end of with 8% growth, assuming condtio y e ears f Year 3 ons in part B....
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## This note was uploaded on 06/15/2011 for the course ECON 550 taught by Professor Profsmith during the Spring '11 term at E. Stroudsburg.

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FIN550 Week 5 Discussion chapter 11 - Dividend Growth Rate...

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