The last dividend that was paid yesterday (D0) on Spirex Corporation's common stock was $8.00, and the expected growth rate is 0 percent. The required rate of return on this stock is 10 percent.
What is the highest price you should be willing to pay for this stock?
$50
$64
$78
$80
$92
B. Suppose the firm's expected growth rate is 5% now, what is the price of the stock?
Assume that the other information remains the same as before,
i.e., D0 = $8; rs = 10%.
$100
$120
$133
$150
$168
C. What is the present value of the future growth opportunity represented by the 5% growth rate, compared to 0% growth rate?
$50
$65
$70
$88
$96
D. Still assume the constant growth rate is 5%. What is the stock price at time 1, i.e., one year from today? Assume that the other information remains the same as before,
i.e., D0 = $8; rs = 10%.
$105
$126
$139.65
$176.4
$196