Linen supply co paid a dividend of 325 on its common stock, Finance Basics

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Linen supply co paid a dividend of 325 on its common stock

Linen Supply Co. paid a dividend of $3.25 on its common stock yesterday. The company's dividends are expected to grow at a constant rate of 5.5% indefinitely. The required rate of return on this stock is 17.5%. You observe a market price of $27.50 for the stock. Should you purchase this stock?

a. Yes, the market price is below the intrinsic value of the stock.

b. Yes, but only if you can keep the stock at least 5 years.

c. No, the growth rate in dividends is too far below the required return

d. no, the market price is abo e the intrinsic value of the stock

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Finance Basics: Linen supply co paid a dividend of 325 on its common stock

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Finance Basics: Linen supply co paid a dividend of 325 on its common stock

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