A firm is earning 2 per share and pays out 080 in dividends, Finance Basics

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A firm is earning 2 per share and pays out 080 in dividends

Question: A firm is earning $2 per share and pays out $0.80 in dividends. The required return is 16%, and the projected growth rate in dividends is 9%. Because of government actions, inflation increases from 5% to 7%. Determine the change in stock price assuming

(a) no ability to adjust for the increased inflation, and

(b) a 75% adjustment to the change in inflation.

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Finance Basics: A firm is earning 2 per share and pays out 080 in dividends

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