Investors require a 15% rate of return on Levine Company's Stock(that is, rs=15%).
a. what is its value if the previous dividend was D0=$2 and investors expect dividends to grow at a constant annual rate of (1) -5%, (2) 0%, (3) 5% or (4) 10%?
b. Using data from part a, what would the Gordon(constant growth) model value be if the required rate of return was 15% and the expected growth rate was (1) 15%, (2) 20%? Are these reasonable results? Explain.
c. Is it reasonable to think that a constant growth stock could have g>rs? Explain.