Why an investor would still be interested in buying the


The Matador Restoration Co. is facing continually decreasing revenues due to the ever-shrinking population of people who want to restore vintage AMC Matadors. Based on the most recent earnings forecasts, management anticipates that dividends will decline at a rate of 11% perpetually. The firm just paid a dividend of $7.50 and the required return on the stock is 17%. a. At what price should the stock sell today? b. Calculate what the stock should sell for 6 years from now. c. Briefly explain, perhaps with the aid of a single calculation, why an investor would still be interested in buying the stock today even though the stock price will fall across time. [HINT: See Lesson 4’s lecture’s slides 6-19 through 6-22.]

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Financial Management: Why an investor would still be interested in buying the
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