Stock Valuation

| October 16, 2015

Q1—-ABC Inc. is expected to pay a dividend of $3.75 in the coming year (D1 = $3.75). The company will increase its dividend payment at a growth rate of 5 percent every year indefinitely (g = 5.0%). If the required rate of return on the stock is 8%, what is the current value of the company’s stock?

Q2—  Francis Inc.’s stock has a required rate of return of 8.0%, and it sells for $105 per share.  The dividend is expected to grow at a constant rate of 4.0% per year.  What is the expected year-end dividend, D1?

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