Unformatted text preview: (a) At what price should the stock of PQR sell if it is priced by the constant dividend growth model? (b) Decompose the price into PVGO and the present value of Assets-in-Place (c) What is the return on book value of equity for this firm, assuming that the growth rate can be estimated by the product of the retention ratio and the return on book value of equity? (d) Compute B , the current book value of equity for the firm on a per share basis. 3. XYZ Inc. just paid out a dividend ( D ) of $2.25. The firm anticipates that its annual dividends will grow at 20% a year over the next 6 years (from October 2007 to October 2013). From October 2013 onwards, the management expects that the firm’s dividends will grow in perpetuity at 4% per year. Work out the price of the stock assuming that the risk of its future cash flows justify a discount rate of 16%. 1...
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This note was uploaded on 02/12/2012 for the course UGBA 101A taught by Professor Mccullough during the Spring '08 term at Berkeley.
- Spring '08