Mercier Corporation's stock is selling for $95. It has just paid a dividend of $5 a share. The expected rate in dividend is 8percent.
a. what is the required rate of return on this stock?
b. using your answer to a suppose Mercier announces developments that should lead to dividend increases of 10 percent annually. What will be the new value of Mercier's stock?
c. Again using your answer to a suppose developments occur that leave investors expecting that dividends will not change from their current levels in the foreseeable future. Now what will be the value of Mercier stock?
d. From your answers to b c; how important are investor's expectations of future dividend growths to the current stock price