Questions -
Q1. Common stock valuation, constant growth - you've discovered a company that is expected to pay $2.25 dividend at the end of this year. The dividend is expected to grow forever at a constant rate of 4% a year. The required rate of return for this stock is 8%. Given these conditions, what is the estimated market value per share of this stock?
Q2. Common stock valuation, non-constant growth - you've discovered a company that is expected to pay $2.25 dividend at the end of this year. You estimate the company's dividends will grow 10% next year and then at a constant rate of 4% thereafter. The required rate of return for this stock is 8%. Given these conditions, what is the estimated market value per share of this stock?
Q3. Issues with the dividend growth model - what are three issues that must be dealt with when evaluating stocks with the dividend growth model?