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Assume the average firm in your company's industry is expected to grow at a constant rate of 7% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry and just paid a dividend (D0) of $1. You expect that the growth rate of dividends will be 50% during the first year (G1,2 =25%). After Year 2, dividend growth will be constant at 6%.

What is the required rate of return on your company's stock? What is the estimated value per share of your firm's stock?

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Hubert Koch
Hubert KochLv2
28 Sep 2019

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