Using Equation 8.17, suppose you have computed the required rate of return for the stock of Bulldog Trucking to be 16.6 percent. Given the current stock price, the cur- rent dividend rate, and analysts' projections for future dividend growth, you expect to earn a rate of return of 18 percent.
a. Would you recommend buying or selling this stock? Why?
b. If your expected rate of return from the stock of Bulldog is 15 percent, what would you expect to happen to Bulldog's stock price?
Text Book: Contemporary Financial Management By R. Charles Moyer, James McGuigan, Ramesh Rao.